Today’s Organizations Are Externally Bound
QHE term “outward bound” was originally used to describe ships that left their home port for foreign destinations. Later, it was associated with a nonprofit that provides young people with adventures in nature. Now it needs a third use, for organizations.
For most of the last century, the most popular strategies of large corporations were vertical integration and diversification, pursued within their traditional boundaries, or internally. Vertical integration expands their chain of operations, bringing within their boundaries suppliers at one end (“upstream”) and customers at the other (“downstream”). A car company may have bought a supplier of its batteries, or set up its own dealerships.
When a company diversifies, it buys other businesses, or otherwise develops new businesses internally, to sell additional products or services, such as Honda, which leverages its expertise in motors to produce a variety of vehicles – outboard motors, lawnmowers, ATVs, and more.
Although vertically integrated or diversified, the boundaries of these organizations remain sharp, with new activities reporting through the established hierarchy. How it has changed.
Today organizations are using strategies to bring them out using any of six different arrangements.
1. Networking outside
Networking is not new. Organizations often do this to facilitate communication, externally as well as internally. What has changed in recent times, thanks to social media, is the reach of networking outside. Today, connecting with colleagues around the world can sometimes be easier than connecting with colleagues in the next office. At the end of their shift, a team of software engineers in Boston can transfer the work where they left off (“asynchronously”) to another team in Bangalore, inside or outside their own company, who will continue the work until, finally as they moved, they moved it back – all with incredible finesse.
Networking need not be based on any formal structural arrangement; sometimes it just happens. On the contrary, the other five arrangements of external organizations that are bound are relatively formal structures, two use contracts, one of the rules, the last two of the appointed member.
2. Outsource contracting
The boundaries of an organization begin to blur when it engages in outsourcing – the opposite of vertical integration – because some activities performed in-house are contracted to external organizations or individuals. Some outsourcing has been around for a long time. For example, organizations use certain contract services — legal services, for example. And contractors in the construction industry have long used a broad form of outsourcing. As their name indicates, they secure the contract to construct a building, and then subcontract the activities.
The key here is to know what the organization’s core competencies are – those that cannot be abandoned if it does not cease to be a viable business. In construction companies, for example, this seems to be the capacity to obtain contracts and choose the right subcontractors. Sometimes, however, an organization discovers a core competency after it has been outsourced. Air Canada developed a successful points program called Aeroplan, then spun it off into a separate division, later sold it, and finally – perhaps realizing it was the core – bought it back.
Outsourcing has long been prominent in government, if not by that name. With so many public services to provide, they are often outsourced where possible. But the outsourcing of public services can also be carried to excess, as, perhaps, in states that outsource prison services to private companies.
3. Work together to work together
Here the boundaries are increasingly blurred, as independent organizations collaborate to design, develop, and/or market particular products and services. They venture out together, the implication being that the relationship is temporary.
The Smart Car is an interesting example of this in the automotive industry, resulting from a joint venture between Mercedes and Swatch. And the vaccine breakthrough in the COVID pandemic came from a joint venture between Pfizer and a husband and wife team in a small company.
The label “joint venture” may be used primarily in business, but “PPP” (public-private partnership) is commonly used for such businesses across the sector. In fact, many that go by this label are actually public-plural partnerships – that is, governments partner with community associations in the plural sector. And not uncommon are public-plural-private partnerships (not yet called PPPPs), such as when local governments, NGOs, and private companies join their efforts to, say, reduce pollution in their city.
4. Offer a platform for others
The opposite of outsourcing is a type of insourcing: an organization positions itself as a platform for the particular use of outsiders. This is how we use Wikipedia, an archetypical example of a platform organization, such as Open-source Software (OSS), where, to use the words of Wikipedia, “the copyright owner gives users a right to use, study, modify, and distribute the software and a source code to anyone and for any purpose.”
We are not employees of Wikipedia, not even members (it has no members). So we are not inside Wikipedia. However, we are not outside of it either. We can enter whenever we want, and not only in puruse. Wikipedia has no owner — it is neither private property nor public property, but, in a sense, common property, available to all of us. It funds itself by soliciting donations from its users. Facebook, on the other hand, is the private property of its shareholders, like many other organizations on the platform. But its influence on our social discourse causes it to be treated like common property. Twitter is more, as Elon Musk knows.
5. Join for common purpose
Participation can be seen as inserving (as opposed to outsourcing): a group of organizations, or individuals, come together to commit themselves to a common task. Thus, the businesses of a city – hotels, restaurants, cinemas – can be partners in the development of local tourism.
Joining is similar to creating a platform, except here the users do it for themselves. For example, some hospitals negotiate with suppliers for better prices. They join, but they do not unite, because each member maintains their independence.
6. Join a table
Association is looser than contracting, jumping, creating a platform, and even joining, but still an external arrangement. This means that organizations come together for common concerns, as opposed to coming together for specific functions. Partners can meet from time to time (sit around the table) to discuss interests they share. In diplomacy, for example, the G7 and G20 are associations, while NATO is an alliance, with a military role.
Popular terms, such as consortium, chamber, alliance, and assembly describe these associations, although these terms are sometimes used for affiliations as well. Do trade associations exist in industries or chambers of commerce in cities to discuss common concerns, or lobby for common causes? Usually, both. And when big competitors meet, is it a simple association – “Just to communicate” – or does it become an affiliate, in the form of a cartel?
A good part of the contemporary structure of organizations is moving outward, blurring their once clear boundaries with the benefit of opening themselves up to be more agile.
Henry Mintzberg is Cleghorn Professor of Management Studies at McGill University in Montreal, the winner of awards from the most prestigious academic institutions and management practitioners (Harvard Business Review, Academy of Management, Association of Management Consulting Firms, etc. pa), and the recipient of 21 honorary degrees from around the world. He is the author or co-author of 21 books. His latest book is Understanding Organizations…Finally! – Structuring Sevens. Learn more at mintzberg.orgor see Minutes with Mintzberg on YouTube.
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