ROLE OF AREA MODELS IN CORPORATE EVOLUTION
IDEA of Area Models (AM) is not new and has been around for a long time. An Area Model can be defined as a functional group based on certain classifications containing groups of experts that has ‘the ability to integrate, build and reconfigure internal and external competencies to address rapidly changing environments.’ Area Model is based on the Theory of Dynamic Capabilities , and it is traced back to Teece & Pisana (1994), who highlighted that firms must dynamically respond to fast-paced and competitive environments through internal capabilities [From Exploring the Field of Business Model Innovation]. AMs are the future of corporations if they want to survive and flourish.
This idea signals change, which is resisted at every level in a company as human nature abhors change in any shape or form. Change signals a departure from the past and people associated with previous processes and strategies feel insecure, it makes them anxious about losing control and they are worried that their skills will become obsolete. When such a change involves a big shift of strategic direction, the employees invested with previous processes are left with a perception that they must have been doing something wrong all this time. Change is also interpreted as being more work by some. Employees may justifiably inquire that if things are working fine and the company is profitable year after year then why this shift in direction? The answer is quite simple — we are doing great now as we are providing what customers want, but that customer demand has a dynamism of its own — it will certainly change over the coming years. If we do not adapt to these changes in technology, fads, product cycles, tastes, and customer wishes — then we put ourselves at risk of becoming irrelevant. Just think about Polaroid, it was at the peak of its game in 1991 with yearly revenues of over $3 billion — just ten years later, it had to declare bankruptcy. The reason was simple, the company failed to anticipate and fully embrace the digital photography which was becoming popular among the public. The best thing for leadership to do is to be honest, fair, and transparent about any future change management.
What does a message of change convey to the people in an organization? Do they approach this from point of view of hope or fear? Concerns about being left behind is the biggest fear that holds people back from acceptance. I believe that employees should shift from trying to predict what will happen in the future (negatively) to preparing for many different futures (positively). They must prepare for a lot of ‘what ifs’ and be ready for these. There should exist a passion for the change, otherwise it will not be successful. Any change management process should tap into the passion and inner purpose of those involved, linking to a higher purpose — if this happens then extra ordinary things can be achieved. Business studies have proven that change initiatives with a higher purpose have significantly higher chances of success than those that do not inspire employees. Explaining the purpose of ‘Why do we need Area Models’ is paramount. Success of this change initiative will be linked directly to a clear, honest, and fair answer.
For successful AM evolution, leaders must create a culture of change acceptance. ‘Area Model Influencers’ can be a great tool to generate organizational acceptance of innovative ideas than leaders alone can. These employee influencers may not be leaders, yet they wield inordinate amount of power in generating organizational change acceptance through networking, influence, tenure, and the respect they enjoy inside the company. A perception will take root that this idea has the backing of trusted voices from within the organization as opposed to trickling down from the top. Influencers send messages that reinforce the strategy and minimize negative noise about the initiative. Top management in effect does not implement strategy — it is done by the many employees who choose daily whether to take the actions that support or undermine what management has set out to implement. Holding town halls is an effective way to spread the message across the company but they fall short when it comes to generating wholehearted acceptance. Smaller department wide discussions to determine the roadblocks and how change can proceed smoothly gives a sense of ownership stake to the employees, thus insuring genuine support. This helps because if change is embraced fully by employees, then the path forward will be shaped by realistic expectations rather than banalities.
Employees need to understand the CONCEPT of Area Models so that they remain vigilant in adapting to change that is coming. Similarly, it is in the best interest of corporations to be continually on the lookout for new business developments and emerging threats, identifying essential experts, and forming and disbanding teams to help tackle those issues quickly [Harvard Business Review May 2018]. The concept of V.U.C.A (Volatility, Uncertainty, Complexity, Ambiguity) prepares an organization to be ready in these uncertain times. In any organization we typically see that 20~35% of valuable contributions come from a minority of employees 3~5%. They become overly relied upon for majority of the tasks and that hurts their productivity. A better way for these overworked experts is to redistribute collaborative work in Area Models based on certain classifications. As discussed earlier in this article, Theory of Dynamic Capabilities can lead to the creation of Area Models to better streamline this redistribution of work. A VP of Engineering in a wireless multinational whom I interviewed believed that employees in pursuit of career development cannot afford to become obsolete in their fields — they must continuously upscale and rescale themselves to remain competitive.
When we talk about silos, following observations come to mind; turf wars, finger pointing, inhibition of sharing and collaboration to name a few. Silos stifle innovation where people are confined (by design) to narrow perspectives. Let us be fair, silos have worked wonders as organizations grew tremendously and became ever more complex (and vertical) over the last century. Yet as we move into the 21st century, they are losing their effectiveness. Expertise, knowledge, and essential skill sets are widely distributed, and it is beneficial to breakdown silos to be competitive. Silos are like walls (albeit porous) — they restrict constructive collaboration and the flow of information making the company less agile in adapting to the demands of rapidly changing market conditions. Dynamics of silos can be tricky as well; people may refuse to share knowledge as they feel threatened and feel comfortable in their own personal cocoons whereas AMs are based on the principles of collaboration spanning multiple areas.
During Microsoft’s journey towards ‘One Microsoft,’ CEO Steve Ballmer famously said in a memo to all employees, “The final piece of the puzzle is how we work together.” This leads us to discuss another aspect of the Area Model concept — Shared Leadership. It is a well-known fact and has been proven repeatedly in multiple business studies that ‘Leaders who model empathy, curiosity, and a genuine desire to create shared success build the strongest cross-functional partnerships [Harvard Business Review Nov 2021]. Company executives should be open to sharing their responsibilities with the Area Model leaders. They should provide a blueprint of the path forward and desired goals, then get out of the way. Vineet Nayar [Author of Employees First, Customers Second] is of the view that in today’s fast paced marketplace, “teams that need to wait for a leader to weigh in have lost the game before they start.” Shared leadership in Area Models must have the influence and cohesion across cultures (philosophies), boundaries and expertise levels for effectiveness. Area Models will not be effective if there are no overlapping goals, constant collaboration, and continuous innovation.
Area Models should be DESIGNed as empowered and independent in taking most of their decisions in their respective areas of expertise. This way, AM evolution can steer the company towards a flattened structure away from a more traditionally hierarchical structure. Nowadays dynamic markets have made it tough for any company to sustain its competitive advantage , as a result a new set of influencer concepts have emerged. The concepts of Dynamic Capability (DC) and Organizational Intelligence (OI) have become popular among companies which despite their different approaches to the firms’ resources, have the same objective of creating a sustainable competitive advantage.
Handbook of Research on Business Models in Modern Competitive Scenarios defines each of these terms in the following way.
Dynamic Capabilities (DC) are the organization’s routines and strategies, whereby the company reaches new configurations of resources as markets emerge, collide, divide, evolve and die .
While Organizational Intelligence (OI) reflects the organization’s ability to solve problems by means of its subsystems, including its organizational structure, capital, technological processes, knowledge, and cultural philosophies.
In essence, Area Models combine traits of both DC (Dynamic Capabilities) and OI (Organizational Intelligence).
Area Model Competitive Advantage = DC + OI
Competitive advantage gained from an Area Model helps a company in generating superior economic value when compared with its rivals.
Collaboration is a big part of any AM design. Nowadays horizontal collaboration is the main driving force for innovation and business development opportunities in Fortune 500 companies. A paradigm shift is needed for this mindset change from vertical (hierarchical) to horizontal (flat) relationship among employees in a company. Employees who are adept at collaborations should form an integral part of Area Models — these “AM Influencers” usually have experiences and relationships that span multiple departments, functions or different geographical regions and informally serve as links between them.
Area Models should be broadly based on the following classifications.
> Expertise in related field
> Geography
> Attitude & Enthusiasm
> Work Cultures & Philosophy
Heidi Gardner is the author of ‘Smarter Collaboration’ and has done extensive research on agile collaboration in corporations. She is a big proponent of connecting people across units or geographies doing similar work to yield benefits of scale or identifying areas where integration of different perspectives yields agile innovation. Managers who lead AMs should have elevated levels of curiosity and talent to bring diverse groups of employees together, they should be adept in ‘assuming’ differing viewpoints of members of the group. To fully utilize the promise of AMs, leaders should mentor employees to learn and relate to one another across cultural and logistical divides found inside any company. Recent research has shown that when employees in a diverse AM proactively assume the perspectives of others — it enhances the positive effect of information sharing and increases the team’s creativity [What Cross-Silo Leadership Looks Like — Harvard Business Review]. Technical capabilities are a subset within functions, when they are combined with the capabilities of adjacent functions, they form the catalysts that drive performance.
Area Model Evolution in any organization is more of a ‘reconfiguration’
Work Cultures and its associated philosophy is a key factor in the initial formation of an AM. A Senior Director in a wireless organization shared an interesting take on the role of philosophies to reinforce the culture classification. According to him, ‘culture’ is interpreted as an existing day to day experience that is ever evolving, influenced by company’s history, and anchored by some framework to help guide its near- and long-term future cultural vision. But if we peel away the cultural layer further then it is discovered that the framework referenced above will have to be governed by a philosophy of Continuous Refinement, Precision, Empathy, Diversity, and Inclusion. These governing philosophies form an important aspect in the initial formation of Area Models and cannot be ignored.
DE&I is another factor to be considered in the formation of an AM, its members should contribute a diversity of talents, experiences, perspectives — this invariably leads to smarter and innovative solutions. A recent McKinsey study that covered companies in several countries and industries found that groups that were more ethnically and gender diverse performed significantly better than others [Harvard Business Review May 2021].
Area Model Evolution in any organization is more of a ‘reconfiguration’ then a restructuring, there exists a fundamental difference between the two. Restructuring is a much bigger process involving changing the structural framework of a company around which resources and activities are grouped and coordinated. Reconfiguration involves adding, splitting, transferring, combining, or dissolving business units without modifying the company’s underlying structure [Restructure or Reconfigure? HBR April 2017]. Reconfiguration is much faster to do as compared with restructuring and positions the company to better withstand the OPEX pressures. An example of reconfiguration in a big corporation would be compression of vertical or hierarchical structure and a resulting horizontal or Area Model expansion.
When silos (S in above figure) in a vertical hierarchical arrangement are broken and merged — Area Models are formed. As overlapping of jobs in the newly formed AMs is a key requirement, there will be redundant employees whose services can be used elsewhere. Area Models will require a smaller number of individual contributors as compared to silos but those who remain in the silos can be used more efficiently somewhere in a more strategic way. Expanding silos horizontally does not necessarily mean reduction in headcount, on the contrary new areas of efficiency can be found in the company where these remaining resources can be used.
25 years ago, Jack Welch of GE advocated for a ‘boundaryless organization’, bringing employees together across levels, functions, and silos. GE’s name for this arrangement was Work-Out process similar to an Area Model. Jack had the insight that companies in the future would work very differently with shorter decision cycles, more employee engagement, and stronger collaboration [Organizational change requires breaking down silos — Torben Rick]. A present-day company can also emulate this model by holding forums to increase communications across the present hierarchical and functional groups. During these forums, Area model leaders can get real time input from multiple stakeholders (Engineering, Development, Sales, Marketing, Finance etc.) and then make immediate decisions about how to reduce costs and increase market share.
“Experts Leading Experts” was the leadership approach that transformed Apple to the cutting-edge innovative company that it is today [Harvard Business Review Dec 2020]. When Steve Jobs was recalled to head Apple once again in 1997, it had 8000 employees and $7 Billion in revenue per year — currently Apple grosses $394 Billion annually with 164,000 employees worldwide (Market Capitalization ~ 3 trillion). What made this amazing transformation possible? Steve passionately believed that conventional management had stifled innovation, so he reconfigured Apple by combining different functional departments of the business units into one functional organization. This functional structure’s fundamental belief is that ‘those with the most expertise and experience in a domain should have decision rights for that domain” [Head of Apple University gives in-depth look at the company … — 9to5Mac] Such an arrangement of Experts Leading Experts dovetails nicely with the Area Models I have discussed in this article. Even though Apple has grown tremendously from the year it started its transformation — it still retains this structure.
“Experts Leading Experts” was the leadership approach that transformed Apple.
Change is here to stay and change management has become an essential business priority that cannot be ignored or misunderstood. Area Models will not be successful if they do not inspire employees and do not have a higher purpose linked to them. Purpose and passion will always triumph over process and business goals when it comes to any change initiative. Area Model evolution is the continuous realignment of an organization’s unique competitive resource base and advantages — it sets in motion the dynamic process of balancing revenue, operational costs, organization, and its core values. Area Model evolution should be fully supported, embraced as a positive change with an open mind and accepted as a way forward to the future — otherwise we risk becoming obsolete.
