Shaping companies to get closer to customers

Introduction

It’s an central maxim of our time that companies need to engage with customers, to support open dialogue about products, services, and problems, and to listen closely to get the real story. How does that translate to the shape of an organization? In this update, I look back 20 years to some thoughts from a Nobel laureate about company shape, and I juxtapose that with a recent report on best practices in listening to your marketplace for ‘weak signals’.

Exposition

Arno Penzias, the Nobel laureate in physics for his co-discovery of cosmic microwave background radiation that helped to establish the Bing Bang theory, worked for much of his career as a researcher at AT&T’s Bell Labs. In the ’90s, after the break-up of the Bell System, a much smaller AT&T was going through a radical restructuring, one that would eventually lead to spinning off most of its equipments manufacturing business — along with Bell Labs — into Lucent Technologies.

Prior to that, however,  the changing forces within and outside the company led Penzias to reflect on the fundamentals of organizations relative to their purpose: helping customers. And his insight was that the very thing that makes large companies stable acts as a impediment to hearing and connecting with customers. He used his recent experience with the changes at AT&T and Bell Labs to establish a baseline of how the famed research organization was run as a pure research institution without regard to the business interests of AT&T. However, that began to shift toward a business orientation:

Arno Penzias (adapted in Fortune from Harmony, 1995)

Not unlike departments of other compartmentalized organizations, each research group worked to exploit opportunities as its people saw them, with little attention paid to others. One area of technology might receive attention from multiple groups, while another might receive none at all. The situation called for change. No matter how well the past work styles had served us, they no longer sufficed. But that didn’t mean trashing our organizational structure. Instead, we concentrated on giving each part of the organization a needed outward-looking focus. Among other things, each research manager had to take on an additional assignment. Instead of just striving to make sure that each scientist and engineer in a given department worked at the highest level of accomplishment, managers took responsibility for fulfilling AT&T’s technology needs in areas assigned to them.

In retrospect, it’s easy to see this transition at Bell Labs as a mistake, in that a great research institution that had yielded seven Nobel prizes, the transitor, Unix, the C and C++ programming languages, and numerous other breakthroughs, fell in prominence in the Lucent Technology years, and AT&T became just another phone company.

But I am deeply interested in Penzias, the Nobel laureate, musing on the shape of business relative to its purpose, and specifically that being large is not the advantage that it might once have been:

What matters is not so much size but the distance between individual employees and their customers. As a result, each corporate organization needs to prune its “insides” so as to enhance its surface area. Unlike the organization man who pursued his career safely ensconced in a corporation’s inner workings, tomorrow’s job seekers would do better to go where the action is–just as organizations will perform best when coupled to their environments as efficiently as possible.

Today, 20 years later, we have shifted to thinking about businesses as being based around social networks rather than hierarchies, in general. But the size and shape of the company is still an important factor in understanding the fitness of a company to its economic and societal environment.

Once again. we have to move past the generalities of undifferentiated ‘social networks’ and focus on different scales. Each person in a business has their own social network: the set of people that they know and work with. The collection of marketers in a company, for example, form a social scene, which can be viewed as the combination of all the marketer’s individual sets of contacts into a larger conglomerate. A person can be a member of many scenes, and this is generally how information moves around, carried by a person from one scene to another, like a new concept in design that gets carried into the company by a single designer, into the design scene, and from that to the marketer scene by a second vector, a marketer who hangs around with some designers. And then, that idea catches on, and soon, the company has a new ‘flat’ website design aesthetic in all marketing materials. At the highest abstraction, the company can be thought of as a world composed of all the social scenes within it.1

Allied with Penzias insight, this can be translated to this observation: the best companies are not necessarily the largest; but at whatever size, the best companies are likely to be those whose social networks reach outside of the organization, to better connect with the outside world: the marketplace, the ecosystem of partners and suppliers, and out to the customer.

Returning to the sets, scenes, and world model of social culture (see Sets, scenes, and worlds: understanding social scale in the organization), this translates into connection at all scales. But the most important point is that ultimately that connection from the company to the customer has to take place at the foundational scale: individuals in the company must directly connect with customers, partners, and others in the marketplace. Just as with any organizational change, ultimately individuals have to change their personal behavior for change to occur.

I read a recent report by McKinsey that support Penzias’ observation of 1995 in the behavior of companies today. In a report called The strength of weak signals2, Martin Harrysson, Estelle Métayer, and Hugo Sarrazin wrote about companies reconfiguring themselves to better hear the weak signals coming from the market. Here’s an example from TomTom, the navigation products company:

As part of normal operations, TomTom monitored social media closely, mining conversations to feed into performance metrics for marketing and customer-service executives. The normal process changed after an attentive company analyst noted that users posting on a UK forum were focused on connectivity problems. Rather than let the tenuous comments get lost in the company’s performance statistics, he channeled them to product-development teams. To resolve the issue, the teams worked directly—and in real time—with customers. That helped short-circuit an otherwise costly process, which would have required drivers using TomTom’s offerings to check out connectivity issues in a number of locales. The broader payoff came in the form of new R&D and product-development processes: TomTom now taps directly into its driving community for ideas on design and product features, as well as to troubleshoot new offerings quickly.

Conclusion

The example of TomTom reorienting its attention around weak signals coming through social channels is perhaps the canonical story of the power of social media to force organizational change. Using Penzias’ topological insight, the company should seek to create maximum surface area to touch as much of the outside world as possible. In the case of TomTom that translated into the company analyst — a careful listener — suggesting that product teams could talk directly with customers. As individual product staff made direct connections to customer — adding those customers to their social sets — the surface met the outside.

And the McKinsey authors made the closing argument, with I agree with totally:

Regardless of where companies observe weak signals, the authority to act on them should reside as close to the front lines as possible.

Each of us should be able to decide, on our own, who we will connect with.


1. It’s worth noting, relative to the comments I made last week in Why I’m adopting a new approach at Gigaom Research, that viewing a company this way runs counter to the integration perspective on organization culture, or more specifically, may run counter to the efforts of entrepreneurial management regimes to treat a company as a homogenous society rather than a collection of quite independent social scenes with differing and possibly incompatible cultures. The fragmentation perspective of organization culture is based on the premise that ambiguity may be more pervasive than clarity in the makeup of companies, and that dissent is potential at every scale in a company, up to and including the individual that is of two minds about important issues.
2. A nod to Mark Granovetter’s The strength of weak ties paper, a landmark in social network theory.

Relevant Analyst
Stowe Boyd

Stowe Boyd

Lead analyst, future of work Gigaom Research and stoweboyd.com

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