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Financial crisis, adverse supply shock, technological disruption, or natural hazards and disasters significantly affect global businesses. Recessions caused by these global incidents and problems have serious outcomes on commodity prices, stock markets, economies, and even countries.
A Downturn can be described as a contracted business cycle with a significant decline in economic activity across markets with subsequent drop in spending, GDP, real income, employment, and manufacturing. Downturns cause inflation, decline in sales revenues and profits, and cutbacks on R&D and other crucial expenditures. The scenario challenges businesses because of tightening credit conditions, slower demand, layoffs, and general insecurity.
The organizational readiness to manage and curtail the adverse effects of downturns is the top agenda for the senior executives. However, the uncertain nature of an economic crisis often triggers rash responses or even inaction.
Any haphazard responses or inaction can make recovery of an organization from a downturn costly later on. Downturn management necessitate a calculated approach to confront the uncertainties, anxiety among the employees, and to unlock opportunities out of such crisis. An effective approach to deal with the downturn crisis encompasses 2 key phases:
- Stabilize
- Determine Exposure
- Minimize Exposure
- Capitalize
- Invest for the Future
- Pursue M&A Opportunities
- Redesign Business Models
Let’s dive deeper into the 2 phases.
Stabilize
This phase entails a series of actions to safeguard the organization from downturns and maintain the liquidity required to sustain the period of uncertainty. Leading organizations take downturns as an opportunity to deploy planned yet urgent, high-priority interventions to maintain standard functioning of the enterprise. They carry out careful analysis to appraise and curtail the risks of exposure. Key steps required to stabilize the organization during a downturn include:
- Determine Exposure
- Minimize Exposure
Determine Exposure
This step demands a methodical assessment of risks associated with exposure. This necessitates evaluating various scenarios and their impact on the organization as well as on the industry. The step helps in ascertaining the units that are more susceptible to downturn risks and warrants prompt action. The analysis of various scenario assists in highlighting and communicating the rationale—for interventions required to manage the downturn—to the people across the organization.
Specifically, the step involves initiating 3 fundamental actions:
- Conduct Scenario Analysis
- Quantify Impact
- Analyze Competition
Minimize Exposure
Once the executives have determined the impact of downturn exposure on their business, it’s time to work on reducing the exposure from crisis risks. An understanding of the effects of a downturn exposure on the business helps the senior executives discern the most appropriate method to subsist and make the most of their organizational performance during the downturn.
In order to subsist and minimize downturn exposure risks senior leadership needs to maintain enough liquidity and access to capital to make sound investments in future, keeping a check on cash flows by generating weekly / monthly cash reports, cutting down or delaying discretionary spending, carrying out interventions to improve fundamental business, improve business processes, and maintain the organization’s market value and positive outlook for the investors.
Specifically, the executives have to work on achieving these 3 objectives:
- Protect Financials
- Protect Existing Business
- Maximize Valuation.
Capitalize
The Capitalize phase focuses on growing the business and making the most of the economic situation. Leading organizations prudently manage downturns with greater diligence and immediate, well-thought-out response. Downturns do not preclude executives from investing in critical interventions. Most investments take time to fruition and postponing crucial investments may put an organization on the back foot when economic conditions normalize.
To capitalize on these hard times, senior executives need to carefully think about and prioritize the various investment options and endeavors critical for improving productivity and revenue, consolidate the business through mergers or acquisitions, hold back spending on projects with unclear results, shelve the endeavors that do not have a key role in future success, and invest in developing their people.
Specifically, they should chart out 3 key actions to take advantage of the crises and emerge rejuvenated after these tough times:
- Invest for the Future
- Pursue M&A Opportunities
- Redesign Business Models
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As the business and operating environment changes, there has been a greater demand for transparency and accountability as to the integrity of internal control. This
has become very critical today as businesses drive to enhance the likelihood of them achieving their objectives and be able to adapt to changes in the global business environment.
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) released in 1992 the Integrated Internal Control Framework that will enable organizations to effectively and efficiently develop and maintain systems of internal control. It also includes enhancements and clarifications that will provide organizations the ease of using and applying the Framework.
An Overview of the COSO Framework
The COSO Framework is the globally recognized framework for designing, implementing, conducting, and assessing internal control. It is recognized as the definitive standard against which organizations measure the effectiveness of internal control systems.
If we look at the internal control, this is not a serial process but a dynamic and integrated process. It is a process effected by an organization’s Board of Directors, Management, and other personnel designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance. It can be considered an enabler when it comes to achieving Operational Excellence.
The COSO Framework provides for 3 categories of objectives. These categories allow organizations to focus on different aspects of internal control. It ensures that the internal control system is operationally efficient and effective, reporting reliable data, and remain compliant to laws and regulations.
The 5 Components of the COSO Framework
In an effective internal control system, 5 Components of the COSO Framework must be present to support the achievement of an organization’s mission, strategies, and related business objectives.
Component 1: Control Environment. This is a set of standards, processes, and structures that provide the basis for carrying out internal control across the organization.
Component 2: Risk Assessment. This forms the basis for determining how risks will be managed. It involves a dynamic and iterative process for identifying and assessing risks to the achievement of objectives. It determines the possibility that an event will occur and adversely affect the achievement of objectives.
Component 3: Control Activities. The 3rd component ensures that Management’s directives to mitigate risks to the achievement of objectives are carried out. These are actions that are established through policies and procedures. It may be preventive or detective in nature.
Component 4: Information and Communication. This component focuses on the generation of relevant and quality information to support the functioning of other components. It is a continuous iterative process of providing, sharing, ad obtaining the necessary information. This is necessary to enable businesses to carry out internal control responsibilities to support the achievement of its objectives.
Component 5: Monitoring Activities. Monitoring activities, as a component, ascertains whether each of the 5 components of internal control is present and functioning. It includes the conduct of ongoing evaluations, separate evaluations, or a combination of both.
The 5 Components of the COSO Framework are essentially important as they represent what is required to achieve the objectives and the organizational structure of the organization. Each component has its underlying principles and key elements to better guide organizations in putting the components in place.
Additional Key Considerations
The COSO Framework sets the requirements for an effective system of internal control. An effective system reduces, to an acceptable level, the risk of not achieving the organization’s objectives.
There are additional key considerations that organizations must take note of. One consideration is that each of the 5 components and relevant principles is present and functioning. Present refers to the determination that the components and relevant principles exist in the design and implementation of the system of internal control to achieve specified objectives. Functions refer to the determination that the components and relevant principles continue to exist in the operations and conduct of the system of internal control to achieve specified objectives.
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Cost-based Pricing is fast becoming a relic of the past and being substituted by the concept of Target Costing. Target Costing is referred to as an organized process to determine the cost at which a proposed product must be developed so as to generate profits at the product’s anticipated selling price in future.
In highly competitive markets such as FMCG, construction, healthcare, and energy, prices are determined by market forces. Producers cannot effectively control selling prices. The only control, to some extent, is over costs, so management’s focus has to be on influencing every component of product, service, or operational costs.
Target Costing is a proactive Cost Planning, Cost Management, and Cost Reduction practice. Costs are planned and managed out of a product and business early in product life-cycle, rather than during the later stages. The fundamental objective of Target Costing is to make the business profitable in any competitive marketplace. Target Costing is widely used in several industries e.g. manufacturing, energy, healthcare, construction, and a host of others.
Some key features of Target Costing are:
- Seller is a price taker rather than a price maker.
- The target selling price incorporates desired profit margin.
- Product design, specifications, and customer expectations are built-in while formulating the total selling price.
- Cost reduction and effective cost management is the corner stone of management strategy.
- Target Cost has to be achieved through team collaboration during activities such as designing, purchasing, manufacturing, marketing, and other activities.
Target Costing presents the following advantages over other product pricing techniques:
- More value delivered to customer since the product is created keeping in mind the expectation of the customer.
- Approach to designing and manufacturing products is market driven.
- Competitive Advantage gained through process improvement and product innovation.
- Drastic Process Improvement, which creates economies of scale.
- New market opportunities converted into real savings to achieve the best value for money rather than to simply realize the lowest cost.
The Target Costing process comprises 3 main phases.
- Market-Driven Target Costing
- Product-Level Target Costing
- Component-Level Target Costing
Let’s discuss the 3 phases briefly.
1. Market-Driven Target Costing
In this phase, Selling Price is determined by analyzing the entire industry value chain and all functions of the firm. The focus of this costing phase is on analyzing market conditions and determining the company’s Profit Margin in order to identify the “Allowable Cost” of a product.
In this phase, the desired profit level is set on the basis of firm’s strategy and financial goals, and is deducted from Selling Price to obtain Allowable costs. Intensity of competition, nature of customers, similar product introduction by competitors, and level of customer sophistication are the key factors influencing Market-driven Target Costing.
2. Product-Level Target Costing
In this phase, Allowable Cost only gives a ball-park figure of cost saving to be achieved. It has to be translated into Achievable Target Cost. This type of costing concentrates on designing products that satisfy the company’s customers at the Allowable Cost. The cardinal rule of Product-level Target Costing is to never exceed the Target Cost.
The objective of this Target Costing phase is to create intense but realistic pressure on the product designers to reduce costs. Product Strategy (number of products in the line, frequency of redesign, degree of innovation) and product characteristics (complexity, magnitude of up-front investments, and duration of product development) are the key factors affecting Product-level Target Costing.
3. Component- Level Target Costing
The Component-level Target Costing settles the price at which a firm is willing to purchase the externally-acquired components being used in its product. This phase involves a cross-functional team that is tasked to reduce costs across all functions such as designing, purchasing, manufacturing, marketing, and other activities.
The components cost history serves as the starting point for estimating the new component-level target costs alongside optimal selection of suppliers. A supplier-focused strategy is the key factor that influences Component-level Target Costing.
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The most resilient and consistently successful companies have discovered that the devil is in the details of the organization. No company may ever totally master the
enigma of execution. But for them organizing to execute has truly become a competitive edge.
Execution only becomes effective when the company’s DNA is holistically integrated. This means weaving intelligence, decision-making capabilities, and a collective focus on common goals widely and deeply into the fabric of the organization so that each person and unit is working smartly and together.
The best Organizational Designs are adaptive, self-correcting, and robust. But creating such an organization does not happen quickly. It can take several years to get the basic right.
In understanding Organizational DNA, one needs to have a full grasp of the 4 bases of Organizational DNA, as well as the 8 core elements of the Organizational DNA. While the 4 Bases are the building blocks, the 8 core elements are the blueprint for Organizational Design.
The 4 Building Blocks of Organizational DNA
Organizations must have a good operational understanding of the 4 Building Blocks of Organizational DNA to better perform effectively and efficiently. The 4 Building Blocks are Structure, Decision Rights, Motivator, and Information.
Structure is the organization of business units around customers, products, or geography. In principle, structural choices are made to support a strategy. However, in practice, often a company’s organizational structure and strategic intent do not match.
Decision Rights specify who has the authority to make which decisions. Often, these put the flex o the organization chart and define where responsibility lies.
Motivators are incentives, rewards, and systems that enable employees to perform their functions well. It shows how people respond rationally to what they see, understand, and rewarded.
Information is one critical base in the company’s DNA that underly the company’s ability to ensure clear decision rights and motivate people. Information is among the most underappreciated contributors to Operational Excellence and competitive advantage. Often, better information flows did more than keep costs down. It helps allocate scarce resources far more efficiently than before.
Discovering the 8 Elements of Organizational Design
It is best to understand the 8 Elements of Organizational Design as it is the blueprint for Organizational Design.
Let us take a look at the first 2 rungs. The first 2 rungs focus on Authority, governance of behavior, and how a company governs behavior.
Rung 1: Authority and governance of behavior
In terms of formality, in the formal part, how decisions are made are elements that a company can precisely articulate. This can be expressed through governance forums, decision rights, decision processes, and decision analytics.
In the informal part, how people instinctively act or take action is the informal part. This can refer to values and standards, expectations, and unwritten rules, and behaviors.
Rung 2: The way a company governs behavior.
The formal part is the Motivators on how people are compelled to perform. These can be represented by monetary rewards, career models, and talent processes.
The informal part is commitment. It is how people are inspired to contribute. It is represented by shared visions and objectives, individual goals and aspirations, and sources of pride.
The first 2 rungs are essential in ensuring that the Organizational Design has a balance of both authority and behavior.
The 3rd and 4th rungs focus on flows of knowledge and insight, as well as structure and networking. These 2 rungs are essentially important in ensuring that appropriate structure and network is in place to support flows of information and insights.
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Transformation from a product-based model to a platform model is a dream for many executives. More and more product companies are now shifting into a platform model. The drive behind such a shift is the huge success of platform companies—e.g., Amazon, Google, and Apple. These organizations started out as a retailer, search engine, and iPod manufacturer respectively, but later transformed into platform models.
However, bringing this transformative vision into reality is anything but straightforward. Research into successful platform businesses reveals that this necessitates a robust approach comprising the following 4 critical phases:
- Attractive Product and Customer Base
- Hybrid Business Model
- Rapid Conversion
- Identify and Seize Opportunities
Let’s dive deeper into the first two phases of the approach, for now.
Attractive Product and Customer Base
A platform model is not a remedy to resuscitate products that are on a downward slide. It necessitates an attractive product that offers a significant customer base and value to help improve customer loyalty and resist rival offerings. The critical mass of customers also allows the platform company to create value for—and attract—third parties that are crucial for the platform to flourish.
Qihoo 360 Technology, a large internet firm in China, commenced its operations in 2006 by selling an antivirus software, 360 Safe Guard. To build a broad user base and to gather customers’ feedback on improving the product, the company started giving away the product free. The company maintained a list of malware as well as a “whitelist” of programs that were safe for the users. The critical mass of customers allowed Qihoo to:
- Quickly identify viruses on scanning computers
- Improve the antivirus
- Introduce new products
- Attract new customers
- Create new platforms
- Attract 3rd-party software companies to make Qihoo a channel for reaching customers.
Hybrid Business Model
The notion that an organization has to embrace either a product-based or a platform-based business model is far from reality. Although, both the product-based and platform-based business models need a framework to assign dedicated resources and manage operations, however, Business Transformation from a product-based model to a platform-based model gets simplified utilizing a hybrid approach. A product-based business model calls for organizations to have differentiated products catering to customers’ needs, to create value. Whereas, a platform-based business model creates value by linking users to 3rd parties and charging fees for using the platform. The focus of Platform models is on:
- Inspiring mass-market acceptance
- Increasing the number of interactions rather than meeting specific customer needs
- Connecting users and 3rd parties to create competitive edge instead of relying solely on product differentiation (product model).
For example, Apple converted itself from a product model to a platform model within a year after the launch of the first iPhone. Initially, Apple reacted defensively to any hacking attempts and precluded 3rd party apps on the iPhone, but then decided to create an open platform, and launched the App Store. The hybrid model and platform mindset created additional income streams and significant revenue for Apple.
Rapid Conversion
To make a product and business model profitable, the conversion of product users into platform users is of utmost importance. To enable this, an organization needs to develop its platform in such a way that it should present enough additional value for the customers to adopt it and become its users. Three key elements are critical to accomplish this:
- Deliver adequate value
- Launch connected products consistent with the brand
- Allow 3rd parties to perform upgrades
If the platform does not offer adequate value for the customers they are not going to embrace it the way they do to a great product. Similarly, addition of new offerings that are coherent with the brand has a strong correlation with new platform adoption. New offerings gain traction from a firm’s image and strengthen the brand further. Likewise, allowing 3rd parties to make upgrades, improve product offerings, and develop the platform further helps in rapid conversion, additional revenue, and growth.
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Scalability is defined as possible meaningful changes in magnitude or capacity. In business terms, it’s the capability of a system to enhance productivity upon resource augmentation. Scalability provides an organization the capabilities to develop compelling value propositions—that are hard to imitate by the rivals—and achieve profitable growth even in the wake of external threats, cut-throat competition, stringent laws, or financial downturns.
Today’s challenging business ecosystems and economic outlook demand from the enterprises to develop novel and Scalable Business Models that are able to leverage positive returns on investments. To accomplish this, leaders need to identify and eradicate any capacity issues, enhance collaboration with existing partners, build new partnerships, or develop platforms to work with their opponents.
Executives should invest in scaling options only when they are sure to boost returns. They have to be quick to exit a business when returns on investment to scale backfire.
5 Patterns of Business Model Scalability
Benchmarking a number of successful organizations reveals that their Business Models were flexible enough to sustain internal and external pressures. Business Model Scalability hinges on aligning the strategic partners and Value Propositions to serve the customers.
To drive Business Model Innovation (BMI), leading organizations consistently display 5 critical patterns of Business Model Scalability:
- Operate with multiple distribution channels
- Eliminate typical capacity limitations
- Outsource capital investments to partners
- Allow customers and partners assume multiple roles in the business
- Create platform models
Operate with multiple distribution channels
Successful businesses achieve scalability by selling through multiple distribution channels. Well-known businesses—e.g., Google and Apple—have extensively studied and implemented adding additional distribution channels. By avoiding cannibalization of sales through existing channels, this has allowed them to spread overhead costs and profit from increased sales. Additional channels help businesses expand clientele and uncover new opportunities.
Eliminate typical capacity limitations
Scalability necessitates finding ways to overcome capacity limitations that hamper various industries. Well-known companies achieve scalability by overpowering any limitations that constrain various businesses. Successful companies are not inhibited in any way by physical or material constraints—including deficiencies related to manpower, capital, warehousing, systems, technology, or capacity. For example, managing costs related to creating R&D facilities and innovating new products that often impede the entire pharmaceutical industry.
Outsource capital investments to partners
Top businesses achieve scalability by transferring or sharing cash flow and working capital requirements with the partners. They optimize their capital and cash flow limitations and prioritize their crucial investments. They adopt Business Models geared toward creating open platforms that allow them to shift these expenditures to their strategic partners.
Allow customers and partners assume multiple roles in the business
Scalable businesses work in conjunction with their strategic partners and customers. They offer multiple roles to them and leverage mutual resources for growth of their businesses. They collaborate with each other through joint ventures or through informal mechanisms—e.g., core platforms—which they utilize to share distribution methods, loyalty programs, and resources. They have a “laser” focus on the factors that are of value to their customers, and develop (and enrich) their value propositions based on that.
Create platform models
Top businesses build platform-based Business Models that work on the principles of partnership and scalability. They use their platform-based Business Models to foster relationships with and convert their rivals into partners—by letting them share their platform and generate incremental revenues, for instance, through benchmarking data and “ease of use” sales. Visa Inc. is an example of how businesses connect with shoppers using Visa’s credit card platform.
Scalable Business Models are more likely to generate rapid returns. However, these Business Models demand utilization and alignment of capabilities that the organization, its strategic partners, and customers possess. Execution of the patterns of Business Model Scalability involves categorizing key resources and initiatives required to enable synergistic collaboration and superior product / service offerings.
Executives can make use of these 3 potential levers to achieve Business Model Scalability that provide an implementation roadmap for both novel or revamped Business Models:
- Determine potential strategic partners
- Brainstorm a scalability plan
- Select viable and scalable Business Model options
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Supply chain thinking used to be limited to the managers of a few global companies—companies that were struggling to coordinate internal information and 
materials. This, however, led to an exciting boom in cross-business coordination based on Supply Chain Management concepts.
Today, the field has broadened and shifted over time. Current supply chain trends—differentiation, outsourcing, compression, and collaboration—are being used to restructure supply networks and improve coordination. As more companies integrate their networks, capabilities are improving. The levels of product customization and business complexity are also increasing. As this continues, Supply Chain Management is being used in new ways to create uniquely defined customer relationships anchored on appropriate Customer-centric Design.
The field of Supply Chain Management will continue to influence companies. The best way to understand the impact of a long-term trend is to examine how the trend has changed the way executives view their businesses and what issues they choose to focus on.
Rationale Behind Supply Chain Management
Supply Chain Management is the design, planning, execution, control, and monitoring of supply chain activities. It is the management of the flow of goods and services. Essentially, Supply Chain Management addresses the fundamental business problems of supplying products to meet demand in a complex and uncertain world.
Conceptually, Supply Chain Management draws on the value chain concept of business strategist, Michael E. Porter. It conveys the idea of looking at the supply chain issue at the multi-company level.
As the global business environment becomes more complex and competitive, there have been shorter product life cycles and greater product variety. Due to this, it has increased supply chain costs and complexity. The birth and growth of outsourcing, globalization, and business fragmentation has resulted in a crucial need for supply chain integration. Coupled with advances in information technology, this has led to the creation of greater opportunity for Supply Chain Management.
Why is Supply Chain Management essential at this time? There is now an increasing need to create net value, build a competitive infrastructure, leverage worldwide logistics, synchronizing supply with demand, and measure performance globally. Only Supply Chain Management has a systematic process to satisfy these increasing demands.
With the increasing application of Supply Chain Management, there have been shifts in the view of management and influencing Strategy Development.
The 6 Core Pillars of Supply Chain Management Thinking
The 6 Core Pillars of Supply Chain Management Thinking are the major shifts that have redefined management’s view which is far different from traditional Supply Chain thinking.
The first Core Pillar is Multi-company Collaboration. This is the shift from cross-functional integration to multi-company collaboration. Traditionally, Supply Chain thinking was focused on integrating within their companies. But with the new Supply Chain Management perspective, the focus now is on integrating across companies to coordinate and improve supply.
With the shift in thinking, what is asked now is how do we coordinate activities across companies, as well as across internal functions, to supply products to the markets. This is a great deviation from the traditional thinking which ask how do we get the various functional areas of the company to work together to supply product to our immediate customers.
With the first Core Pillar, we get to achieve significant breakthroughs. There are lower supply chain-related costs and improved responsiveness within a chain of companies.
The very essence of Multi-company Collaboration is rethinking how organizations align goals and make decisions.
The other Core Pillars are Market Mediation, Demand Focus, Product Design Influence, Business Model Innovation, and Customized Offerings. Each core pillar is considered an enabler that has a vast impact on Supply Chains.
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Strategic Supply Chain Planning is the “Pegasus of Strategy.” It can soar, but it also needs to keep its feet on the ground.
Companies with a global supply chain now need to introduce its strategic left hand to its operational right hand. To make planning more valuable, its strategic supply chain planning needs to combine strategic planning with its tactical supply chain planning. The importance of aligning strategic direction to the supply chain has become of utmost importance.
Senior Managers formulate strategies to maximize shareholder value. Supply chain planners run optimization models to minimize costs. If scenario planning is combined with supply chain planning, the best of both worlds is achieved. The company can expect to achieve a long-term competitive advantage.
Strategic Supply Chain Planning provides the framework in selecting projects that best support the organization’s supply chain objectives and strategies. It plays an essential role within the Planning Spectrum.
The Planning Spectrum
Within the Planning Continuum are 3 decision-making models of importance to the business.
The range of Strategic Planning approaches across the Planning Spectrum depends on the fundamental changes it is focused on. Strategic Planning, Strategic Supply Chain Planning, and Tactical Supply Chain Planning differ in terms of scope of decision making, decision horizon, flexibility to act, and possible tools to use.
Let us take a look at Strategic Planning. In Strategic Planning, its scope of decision making covers the entire nature of the business. This means that the planning scope covers the reevaluation of the business model.
When undertaking Strategic Planning, there are several tools that can be used. Organizations may use the Framework Analysis or lower-level analysis that may entail the use of spreadsheets. Dynamics tools and other simulation tools may also be used.
If we look at the Strategic Supply Chain Planning, its scope of decision making is more focused or directed. This is undertaken to determine whether there is a need to open or close plants and distribution centers. It is used to determine whether there is a need to modify capacity, change product offerings even the decision to manufacture in-house or to outsource it. Strategic Supply Chain Planning is more directed towards a specific area.
Once Strategic Supply Chain Planning has been undertaken, it is appropriate to follow this up with Tactical Supply Chain Planning. It is at this point wherein organizations now have to plan out and determine which plant should produce what product over the coming months depending on the demand forecast.
When undertaking the Planning Spectrum, it is best to understand the scope of decision making of each planning approach for organizations to achieve the best results.
Other Organizational-based Tools
The 3 Planning approaches have demonstrated effective use of organization-based tools to maximize results and impact. One is the use of Optimization Models for Strategic Supply Chain Planning. The Optimization Model has been known to have been applied effectively by corporations such as Baxter International, Inc., Pet Inc., and GM.
Baxter International, Inc. has been successful in using SAILS or Strategic Analysis of Integrated Logistics Systems. It has been used to evaluate consolidated approaches. Pet Inc was able to used SAILS to assess supply chain synergies from 2 potential acquisitions.
The use of the Optimization Model in Strategic Supply Chain Planning and Tactical Supply Chain Planning differs both in design and use. Hence, it is essential for organizations to have a good understanding of the Planning Spectrum to effectively integrate to use the Optimization Model.
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Execution has become the new watchword in Boardrooms. As organizations fail to effectively implement strategies, the importance of execution has risen to the 
forefront. Essentially, the first step in resolving these dysfunctions is to understand how the inherent traits of an organization influence and even determine each individual’s behavior. Organizations must also understand how collective behavior affects company performance.
The idiosyncratic characteristics of an organization can be codified using the DNA. When the DNA of an organization is purely configured, unhealthy symptoms and counterproductive behaviors are demonstrated.
Understanding the DNA and the Organizational DNA Framework
DNA has been used as a family metaphor to codify the idiosyncratic characteristics of a company.
The Organizational DNA Framework examines all aspects of company architecture, resources, and relationships. It ensures that managers focus their efforts on reinforcing what works in the organization and modifying what does not. It helps companies identify and expose hidden strengths and entrenched weaknesses.
In identifying unhealthy symptoms and unproductive behavior, the Org DNA Profiler is used as a tool. It allows management to gain insight into what is and is not working deep inside a highly complex organization.
The 4 Key Areas or Building Blocks
The Org DNA Profiler, as an Assessment tool, was used to fix problems by identifying and isolating them. Launched in 2003, the Org DNA Profiler measures an organization’s relative strength in 4 Building Blocks on the basis of individual employees’ responses to 19 questions.
What Type of Organization Do You Have?
When diagnosing and overcoming organizational impediments, there is also a need to identify the type of organization that you have. There are 7 broad types of organizations; each organization fitting a certain type.
There is a Resilient Organization. A Resilient Organization can adapt quickly to external market shifts. It can remain steadfastly focused on and aligned with a coherent business strategy. Resilient Organizations can anticipate changes routinely and addresses them proactively. They can attract motivated team players and offers a stimulating work environment, resources, and authority to solve tough problems.
However, there is also a disadvantage when it comes to Resilient Organizations. Resilient Organizations have the tendency to be overly adapted toward one direction or the other.
Another type of organization is the Just-in-Time Organization. The JIT Organization demonstrated an ability to turn on a dime when necessary, without losing sight of the big picture. They can manage to hold on to good people and performs well financially. A Just-in-Time Organization is a stimulating and challenging place to work.
While this may be a good place to work, it can also have its disadvantages. A Just-in-Time Organization is not proactive in preparing for impending changes. In fact, it has not made a leap from good to great. As such, it tends to miss opportunities by inches rather than miles. It celebrates successes that are marginal rather than unequivocal.
The third type of organization is the Military Organization. This type of organization succeeds through sheer force of will of top executives. However, it has a shallow and short-lived middle management bench.
There are 4 other types of organizations. There can be the Passive-Aggressive Organization, the Fits-and-Starts Organization, the Outgrown Organization, and the Overmanaged Organization.
The Passive-Aggressive Organization is considered the most prevalent of all types of organizations. The Outgrown and Overmanaged Organizations, on the other hand, are those that are often considered unhealthy.
The intricacies and defining characteristics of the 7 types of organizations are effective in creating specific interventions to enhance performance and execution. Knowing and understanding the types of organizations can better assist organizations in the analysis of their DNA and guide them in undertaking Business Transformation or Strategy Development.
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Survival of a business in this digital age largely depends on its ability to timely embrace Digital Transformation. Digital Transformation entails using Digital Technologies to streamline business processes, culture, and customer experiences.
In order to compete today—and in future—and to enable Digital Transformation, organizations should work towards fostering a culture of continuous learning, since Digital Transformation depends on learning and innovation. The organizations that holistically embrace this culture are called “Next-Generation Learning Organizations.”
The next generation of Learning Organizations capitalize on the following key variables; Humans, Machines, Timescales, and Scope. These organizations incorporate technology in enabling dynamic learning. Creating Next-Generation Learning Organizations demands reorganizing the entire enterprise to accomplish the following key functions to win in future:
- Learning on Multiple Timescales
- Man and Machine Integration
- Expanding the Ecosystem
- Continuous Learning
Learning on Multiple Timescales
Next-Generation Learning Organizations make the best use of their time. They appreciate the objectives that can be realized in the short term and those that take long term to accomplish. Learning quickly and in the short term is what many organizations are already doing, e.g., by using Artificial Intelligence, algorithms, or dynamic pricing. Other learning variables that effect an organization gradually are also critical, e.g., changing social attitudes.
Man and Machine Integration
Rather than having people to design and control processes, Next-generation Learning Organizations employ intelligent machines that learn and adjust accordingly. The role of people in such organizations keeps evolving to supplement intelligent machines.
Expanding the Ecosystem
The Next-generation Learning Organizations incorporate economic activities beyond their boundaries. These organizations act like platform businesses that facilitate exchanges between consumers and producers by harnessing and creating large networks of users and resources available on demand. These ecosystems are a valuable source for enhanced learning opportunities, rapid experimentation, access to larger data pools, and a wide network of suppliers.
Continuous Learning
Next-generation Learning Organizations make learning part and parcel of every function and process in their enterprise. They adapt their vision and strategies based on the changing external environments, competition, and market; and extend learning to everything they do.
With the constantly-evolving technology landscape, organizations will require different capabilities and structures to sustain in future. A majority of the organizations today are able to operate only in steady business settings. Transforming these organizations into the Next-Generation Learning Organizations—that are able to effectively traverse the volatile economic environment, competitive landscapes, and unpredictable future—necessitates them to implement these 5 pillars of learning:
- Digital Transformation
- Human Cognition Improvement
- Man and Machine Relationship
- Expanded Ecosystems
- Management Innovation
1. Digital Transformation
Traditional organizations—that are dependent on structures and human involvement in decision making—use technology to simply execute a predesigned process repeatedly or to gain incremental improvements in their existing processes. The Next-generation Learning Organizations (NLOs), in contrast, are governed by their aspiration to continuously seek knowledge by leveraging technology. NLOs implement automation and autonomous decision-making across their businesses to learn at faster timescales. They design autonomous systems by integrating multiple technologies and learning loops.
2. Human Cognition Improvement
NLOs understand AI’s edge at quickly analyzing correlations in complex data sets and are aware of the inadequacies that AI and machines have in terms of reasoning abilities. They focus on the unique strengths of human cognition and assign people roles that add value—e.g., understanding causal relationships, drawing causal inference, counterfactual thinking, and creativity. Design is the center of attention of these organizations and they utilize human imagination and creativity to generate new ideas and produce novel products.
3. Man and Machine Relationship
Next-generation Learning Organizations (NLOs) make the best use of humans and machines combined. They utilize machines to recognize patterns in complex data and deploy people to decipher causal relationships and spark innovative thinking. NLOs make humans and machines cooperate in innovative ways, and constantly revisit the deployment of resources, people, and technology on tasks based on their viability.
Interested in learning more about the other pillars of Learning? You can download an editable PowerPoint on Digital Transformation: Next-generation Learning Organization here on the Flevy documents marketplace.
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