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A stubborn business challenge

27 June 2017 by Anthony Hilton

A stubborn business challenge - read more

Companies need to create horizontal cooperation, says Anthony Hilton

Sir Martin Sorrell recounts that when Sir Tim Berners-Lee proposed an information management system at CERN, the particle physics laboratory, he was frustrated by different parts of the organisation – the human and the technological – struggling to communicate with each other. Information and data were hard to find; there were multiple incompatible computer systems and knowledge was not shared efficiently.

Thirty years on, the World Wide Web, which grew out of Berners-Lee’s original proposal, has indeed transformed the way we communicate and how we locate and gain access to information about every conceivable topic. And yet despite being able to communicate instantly and cooperate with almost any point on the globe, as Sorrell points out, communication and coordination within companies remains a stubborn business challenge.

This is not a problem technology can fix. When different parts of a business work effectively together to deliver to customers something which is more than the sum of its parts, it is not because the organisation has a common IT infrastructure, intranet or cloud-based file sharing system. It is because they have the right mix of leadership, motivation, incentives, structure, processes and culture to be able to capture the benefits of technology. Companies are biological not mechanical. Their success or failure is a result of thousands of everyday human interactions.

Traditional hierarchical approaches to management are designed to reduce the human element. The basic principle is that information from the marketplace and operational sites flows up the ladder of middle management to the executives at the top and instructions are passed back down. The idea is that when people receive their instructions they do what is expected of them, and behave like cogs in a machine, so that the machine will run smoothly.

Though seldom admitted, most firms would much rather individuals did not use their initiative. Cogs must fit closely together in proper alignment for the machine to run smoothly.

Firms run like this will not survive. A speaker at a recent conference on the future of work said: ‘Knowledge is so last century; this is the age of imagination.’ What will determine the success of companies in the future is not their ability to pass information up and down the silos in which they are organised, but their ability to pick up information and market intelligence from every conceivable source, then regardless of where it comes from and how it arrives, to share it everywhere.

This gets away from the idea that new information is examined strictly in the context of what has gone before – a process of analysis which taps into the firm’s knowledge and experience – because in a fast-changing world the threats and opportunities will likely come from new areas where that knowledge is of little use or even misleading. The warning inherent in the idea that knowledge is so last century is that legacy thinking can be an even bigger drag on performance then legacy systems.

Very few big organisations are good at horizontal cooperation, which is ironic given that humans are naturally collaborative and usually work well in teams.

It is further understood that diverse groups deliver better creative results than homogeneous groups. So the challenge lies not in making people collaborate, but in removing the organisational barriers which prevent it from happening naturally.

Thus there is a growing awareness that businesses must improve horizontal cooperation, even if established organisations stop short of going fully towards the flat-networked structures favoured by young tech companies. This will not be easy. One reason we are so badly governed is that today’s problems require Whitehall departments to cooperate to deliver solutions when they have no history of collaboration. It is similar in business.

Businesses moving towards a more horizontal model has implications for risk control and compliance. Risk controls tend to follow the structure of the business they are there to monitor, so if the business is siloed, then so will be the risk management.

Airmic recently stressed the limitations of this approach and called instead for risk officers to roam freely across the company, primarily so they can see how an issue in one silo might affect another, quite separate, part of the business. That may be a useful first step, but it should not stop there. If the future of business is in being more flexible and collaborative, that is also the future of risk management.

Anthony Hilton is Financial Editor of the London Evening Standard

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