(2025-02-27) Denning How Networks Of Competence Help Avoid The Trauma Of Reorganizations

Steve Denning: How Networks Of Competence Help Avoid The Trauma Of Reorganizations. ...trauma of reorganizations can be avoided with a different kind of organizational arrangement: a network of competence, rather than a hierarchy of authority.

Massive reorganizations occur in large part because an organization, big or small, public or private, has gotten out of sync with its context. That often happens when the organization is run as a traditional hierarchy of authority, which is inherently inflexible. By contrast, when organizations continuously adapt to their context, as networks of competence, there is much less need for abrupt major change.

The psychological impact of reorganizations and downsizings can be traumatic. As Daniel Seewald wrote in 2019... For those of us who survived this corporate bloodletting, we were offered bland gestures of perseverance and then told to get back to work the next day. Only we didn’t. Not the next day. Not the next week. And hardly for the next month. Years later it is still talked about by some of my former colleagues. Much like a group of post-traumatic stress disorder (PTSD) sufferers.”

A convulsion occurs and new management is installed. Usually, the management has come from outside and so doesn’t know all the details of what has gone wrong and where the problems lie. They also don’t know who to trust. They look around for help.
The management recruits a consultant who also doesn’t know the organization but who purports to have dealt with similar problems in the past.

The management is under pressure to get results quickly and so tends to follow the advice of the consultant for quick fixes.
The quick fixes, which are often based on insufficient or incorrect information, inevitably involve errors, which further accelerate the mistrust of the management.

Why Reorganizations Are Recurring More Frequently

The reorganization doesn’t solve the problem, and the external context keeps changing faster (VUCA). Reorganizations keep occurring, sometimes until bankruptcy puts an end to the organization.

Resolving The Root Cause: Networks Of Competence

The root cause of the problems caused by corporate reorganizations is the pervasive use of a form of organization known as a hierarchy of authority.

in hierarchies of authority, there is only one genuine leader. Everyone else in the organization is reporting to, and subject to the instructions of someone at the level above. There is limited, if any, horizontal interaction between the vertical silos. These features constrain the coordination and innovation of such organizations, which find it difficult to adapt to a changed context. Around 80% of public firms and almost all public sector organizations are run in this way.

Firms have begun finding that networks of competence are better adapted to the faster-paced, rapidly changing customer-driven marketplace of the 21st century.

As depicted in Figure 1, in networks of competence,

• No one is the subordinate of anyone else. Everyone is interacting with others horizontally, so that everyone can be, and should be, a leader.
• There are typically defined interfaces among teams so that horizontal interaction happens naturally, thereby facilitating coordination, autonomy, and innovation.
• A network of competence can only function successfully if it has a clear direction, mostly the creation of value for stakeholders, particularly customers. Around 20% of public firms are now run at least in large part in this mode.
• The explicit customer focus in networks of competence has paved the way for creating exponential network effects.