The Confusing New Look of Organizations: Where’s the Beef?
Welcome to the world of "hollow corporations" and "spider web organizations"! The essence of any firm is increasingly elusive: Hotel companies rarely own hotels these days; an insurance company or some other big financial services firm usually does. Every "thing" the hotel firm owns—brand loyalty, service-management skills, information systems and databases, financial deals—is intangible. But in cases like Marriott's, the value of these intangibles runs to billions of dollars. Furthermore, the ceaseless hollowing process is
accelerating. Hotels again: Recently established Professional Parking Services, Inc., of Irvine, Calif., sells special-event parking services to hotels including Marriott; in some cases PPS runs the entire "front," providing doormen as well as parking valets.
What's new about all this? It could have happened in the past and, to some extent, it did. But not with today's, let alone tomorrow's, intensity. Why not?
To begin with, most of today's specialist entrepreneurs, such as the founder of PPS who fled from Marriott, would have favored a secure lifetime on some big outfit's payroll. Small firms like my 1983 start-up, The Tom Peters Group, also would have had the devil's own time attracting top talent, which likewise gravitated toward big companies; now our problem is that any number of top people won't join us because we are too big; they want to do their own thing.
Moreover, once-skeptical big outfits now welcome their smaller vendors' creativity and efficiency. Case in point: In order to reap the benefits of innovativeness, MCI will go so far as to fund extensive training in quality and service to bring small suppliers' delivery skills up to snuff. In short, shrinking product life cycles and big firms' crash diets are spawning symbiotic relationships among all sorts of odd couples at an unprecedented rate.
Even my own tiny company is enmeshed in (and busy creating) a "spider web" of shifting, complex relationships with a host of tiny and huge outsiders. One of our five independent firms, TPG communications, is hollowed to the point that just four full-time employees produce $4 million in revenue, which translates into sales per person seven times higher than at IBM. TPGC epitomizes "the intellectual holding company," another new term favored by organizational theorists. That is, we leverage ideas and reputation, scouring the globe for the best partners to parlay our "soft" notions into "hard" products, and, ultimately, cash.
In our video activities, for instance, we work primarily with Video Publishing House of Schaumburg, Ill. The $20 million firm gathers top directors (more subcontractors), arranges funding and finds the right airspace (such as PBS). The only thing they "do" themselves is marketing—and outside the U.S. they subcontract most of that. The story is repeated with virtually all of TPGC's other "products": Licensed workshops are produced around the world by CareerTrack of Boulder, Colo. Audio products are joint-ventured with market-leader Nightingale-Conant of Chicago. We research and write a monthly newsletter, but Berkeley-based InterCom Group markets it. And my weekly TV and radio spots are produced and directed by independent firms from around the world, depending on my location at the time.
There are webs within webs. "Our" TV directors work with a host of subcontractors: expert local crews, special-event producers, and high-tech editorial shops, among others. Our book publisher, Alfred A. Knopf, even uses a solo specialist-subcontractor to do its indexing.
What a tangle! I'd hate having to draw an "organization chart" of the relatively simple activities (by Marriott's standard) that I've just described.
How is it all tied together? First, through a clear concept. We know what we're about. By subcontracting most everything, we can focus our time and energy on those few items where we have a strategic advantage. But no one is in charge in the classic sense. We view Video Publishing House as our subcontractor. They view us as their subcontractor. Who's right? Both of us. Each of us will do well to the extent that the other does well.
Why don't we pursue some of the forgone revenue (the $20 million difference between our sales and our products' retail value) by producing, marketing, and distributing our own TV shows, audios, and newsletters? Simple: Each task is hopelessly sophisticated and specialized. There is little chance that we'd match the patiently honed skills of our partners at any one of these activities; each, after all, is as obsessed as we are with constantly improving narrow, special strengths. And that's the larger message: We are not "obsessed" with the ins and outs of newsletter marketing, for example—but the world increasingly offers a choice of entrepreneurs and specialists who are. That's as true for us as for a Marriott, which couples with the likes of wee Professional Parking Services.
This isn't a "great company" story. (I think we're OK.) The point is that our now-you-see-it, now-you-don't structure—a non-structure by the last several hundred years' standards—is quickly becoming the norm in business, from professional services to hotel chains to biotechnology.
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