The “end of an era” Corporate Structure

It’s time to abandon the professional management system that has steered large companies toward becoming low-cost and size-driven for the past 100 years. It’s time to embrace scale and speed.

Refocus on the best of global and local

The pandemic has underscored that the professional management system fails to put the customer first. Customers are suffering from organizational complexity. Many CEOs understand that the more disruptive post-crisis world will require a leaner but stronger global center. Upgrading the center starts with risk management: the capacity to predict risk, adapt and test resiliency. In addition, the center must deliver the benefits of speed and scale to customers. With the customer in mind, leaders can define the best ways to resolve the three great conflicts of business—scale vs. customer intimacy, routine vs. disruption, and delivery of the current business vs. development of new business.

Growth creates complexity, but complexity kills growth. This paradox causes great firms to rise and fall. It should terrify the founders of young insurgent companies. Their hypergrowth, which is the envy of slower, older competitors, is creating hypercomplexity. It should also worry the CEOs of great incumbents, who stand proudly as industry leaders. Their size has created mountains of complexity, making them vulnerable to all those pesky insurgent companies nipping at their toes. It isn’t that these larger, seasoned companies don’t have ideas—they just find it so difficult to get new innovations into the market quickly and at scale.

Once leaders establish the leaner framework, strategic and financial guidelines, and non-negotiables of the new global center, there will be no soul-destroying renegotiations. The days of endless opt-in or opt-out debates between local offices and the global center will end.

Acknowledge that we’re entering a new era of business. The strategies, corporate forms and styles of management that have ruled the last century are shifting in favor of the scale insurgent—just look at Amazon, Google and Tencent. We’re entering what we call the “era of scale insurgency.” It’s time to abandon the professional management system that has steered large companies toward becoming low-cost and size-driven for the past 100 years. It’s time to embrace scale and speed.

Commit to maintaining or rediscovering the Founder’s Mentality. Leadership teams can start by clarifying the insurgent mission and those “spiky” capabilities that support it. They debate which capabilities contribute to their existing repeatable model and which contribute to the new propositions that they’ll introduce to meet customers’ needs. Next, the organization thinks about the talent in mission-critical roles who deliver the insurgent promise to customers, especially the team that brings the benefits of scale and intimacy. Resolve to do more to empower those frontline heroes. Finally, the senior team should adopt an owner’s mindset and a bias for action. They focus the organization on “deep work,” or those activities that allow individuals to employ their unique talents and increase the value of the enterprise. They celebrate execution and speed.

Focus on business building. It’s already in your DNA—or you never would have become a large successful company that created or disrupted markets, and met your customers’ unmet needs. Ultimately, this is your shared deep work.

The quid pro quo of a tight model for the global center will be a loose model for local teams. Why? Many leaders anticipate radical shifts in industry profit pools and competitive dynamics following the crisis. Since these changes won’t be homogenous across markets, they will require fast local responses. This dynamic already unfolded during the lockdown: As the Covid-19 virus spread across the globe, CEOs saw the value of local experimentation and shared best practices. Moving forward, they will empower their local teams to take the lead in strategic innovation so they can provide tailored solutions in their regions. The local teams will operate within the guidelines of the global center. And CEOs will take the best practices and roll them out globally.

It can be helpful to apply a technology mindset when rethinking the roles of global and local teams. Imagine the organization as an operating system and a set of applications. The global center serves as the operating system, or OS. Once the OS is designed, the app developer doesn’t change it. But the developers and their empowered teams are free to run and build out their own applications as they see fit. The applications benefit from being part of the company, with an investment in a single, scaled operating system and the ability to share lessons across application teams.

This mindset also applies when considering “the rest.” Once the retooled firm gets the operating system and applications right, it’s left with the rest: The vast “middle” of the company that neither sets global strategy and standards nor serves local customers. Leading CEOs will reduce the rest. They will no longer allow complexity to slow down their firms.

Rediscover business building

The companies that emerge stronger from the Covid-19 pandemic will be business builders. They understand that customer behaviors and needs will change. They will build new businesses to respond to those changes. They know that industry boundaries will evolve. And they will build new businesses to lead and control those new profit pools. This is the firm’s deepest, most critical work, yet most incumbents have forgotten it. Long ago, they lost the true art of business building in favor of the professional management system and its promises of efficiency.

As CEOs reorient the firm around business building, they will discover that their global capabilities aren’t fit for this purpose. They are designed to run, not build, businesses. And the senior team isn’t geared to be fast, adaptive and supportive of local experimentation and learning. It’s best to recognize that from the start.

we held dozens of conversations with CEOs about the big idea, or the major theme, that will frame all strategic and organizational changes to come. Most CEOs agree on the big idea emerging from the current crisis: “We can’t go back to the way we were. Instead, we must become a more adaptable, learning organization, competing not only with scale, but also speed. We must rediscover business building—to disrupt the status quo and step confidently from this crisis into a much-changed, new world.”

While these CEOs agree on the “what” of the big idea, they differ on the “why.” We can roughly categorize their vision in the following three ways.

The “lessons from lockdown” CEOs. They are enjoying the flexibility of working from home, the smaller and shorter Zoom meetings, the faster cadence, the greater experimentation, the empowerment of local offices and more. They’re telling their organizations, “This new normal feels smarter and better than the way we worked before.”

The “rapidly accelerating trends” CEOs. They argue that the crisis isn’t bringing anything new, it’s actually a rapid acceleration of current trends. For their company, that might be digital disruption, evolving customer behaviors, new attitudes toward climate change, the erosion of globalization and so on. They’re saying, “These trends are now accelerating. We need less talk, more action.”

The “end of an era” CEOs. They believe we’re seeing the final decade of the “professional management system.” This system, which originated in the 1920s, manages scale well, but creates a huge amount of complexity. Today’s incumbents don’t have time to manage that complexity—they need to keep up with new industry entrants that compete with scale and speed (we call them “scale insurgents”). These CEOs are saying, “This crisis has exposed the cracks in professional management and forced us to work differently. Let’s seize this moment and start our own journey to become a scale insurgent.”

We embrace all three approaches. Leaders can decide which one will work best for their people. Regardless of the decision, as CEOs think about the big idea of retooling their firms, they’re sharing the same three messages with their people.