Platt Perspective on Business and Technology

Boundaries and internal organization structure as safe-haven and safety net

Posted in book recommendations, macroeconomics by Timothy Platt on August 19, 2011

Four days ago I posted a note in Macroeconomics and Business about the positive value that boundaries and firewalls can provide, in both limiting the impact of economic downturns and in facilitating local recoveries from them (see Borders and Boundaries as Firewalls in Large-Scale Regional and Global Economies.) I cited the way that the Euro Zone (http://en.wikipedia.org/wiki/Euro_zone) has experienced avoidable complications in its recovery from having all of its nation state members tied together with a shared currency, as it seeks as a whole to emerge from economic crisis stemming from the Great Recession and its ripple effect aftermath.

In a real sense, the problems I wrote of there could be viewed as arising because the countries of the Euro Zone had reached an unstable middle ground solution to the question of unification, with a shared currency and free trade, but with separate national governments, and for purposes of this perhaps even more importantly, separate economies. I will simply add that maintaining separate national governments and legal systems makes maintenance of fundamentally separate economies inevitable, so this unstable middle ground was the most that the Euro Zone could achieve going into this crisis. But my goal in this posting is not to follow up directly and specifically on that posting, and even just to more fully and analytically explain that assertion.

I have found myself looking at individual businesses and their internal structures as I think about this set of issues, and with a particular focus on diverse multinationals and I decided to post on that, with at least some preliminary thoughts on basic principles today.

I have written a number of times about the problems that silo walls can create, and on how thick, impervious silo walls and the turf ownership that goes with them can be symptomatic of a need for change management (e.g. see Effecting Change Through a Table of Organization in the Face of Inertia and Historical Practices.) I have also written about the merits of alternative business models and of the sometimes sustained value within a single organization of maintaining separate, distinct business models. I have written of that in particular where this approach would mean maintenance of sustaining value in acquisitions and for wholly owned subsidiaries, where the parent corporation’s basic business model and corporate culture would not be a good fit for them.

In my recent economics posting as cited above and in my opening comments here in follow through to that, I wrote of problems that barriers can make, and of how partial barriers and the wrong partial barriers can create structural instabilities. I have written about how barriers can be effective or harmful within organizations too. My question here, and for this posting is one that has its counterpart in the international economics context, and that is:

• What types of barriers and what forms of openness create stability and strength, and what forms of barriers and contexts create vulnerabilities to instability and organizational weakness?

I have already offered at least a partial answer to this in previous postings, and I will summarize that here.

• Walls and barriers that divide up an organization, cutting across a single, shared business model create problems.
• This is particularly true where that organization needs a single, shared information infrastructure, and where it would be more competitive with open, shared access to combined resources. See as a reference for this, and certainly with regard to information infrastructures:
• Bryan, Lowell B. and Joyce, Claudia I. (2007) Mobilizing Minds: creating wealth from talent in the 21st century organization. McGraw-Hill, and I also cite Connecting an Organization Together, Version 2.0.
• At the same time, there are circumstances where it makes more sense to wall off and protect parts of an organization, to preserve their unique value propositions and the market share potential they bring – so they can be allowed to function according to their specific marketplace’s needs.

So preservation of unique value proposition and unique capacity to meet the needs of a specific marketplace that this value proposition would be of value to, is one area of circumstance and context where barriers can make sense and offer value. Are there any other factors that could lead to this same result, with value found in maintaining barriers and separation? I would argue the case that at least one other factor could also dictate a need for barriers to help maintain effectiveness:

• When they can help foster and sustain a capacity to flexibly adapt, and particularly where markets and customer needs are rapidly evolving, and the nature of the competitive challenge faced is rapidly evolving too.

This brings me to three core issues that would all naturally follow from here as discussion points:

• In a business context, how precisely would business flexibility fit in here, and what types of barrier would promote or limit it?
• What should a business do to even know what types of openness they need and where barriers and walls might better serve them, and how should they institute change to become more effective in this?
• And returning to the larger scale of national and international economies, what types of openness and what types of barriers and walls should an international alliance such as the Euro Zone move towards to help it find its way out of its current crisis? Here I note two points – when I write in postings such as this one at the level of specific businesses, I write of the basic economic units that these overall economies are constructed from. And the best solution is most probably not to be found in simply breaking down all barriers at either business or national economy levels. For national and international economies that means not simply pulling back and returning to a pre-Euro Zone separation with restoration of the old enforced borders and separate national currencies, as at least some voices of public opinion in Europe would suggest.

I will at least touch on each of these issue areas in upcoming series. This and related postings can be found in Macroeconomics and Business.

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