Global organizations are a new species on the face of our planet – a species that in less than 2 centuries has progressed to rule the world.

Organizations are essentially geometries of power.

They structure our collective decision making.

When we look at the evolution of organizations, we see 4 different stages which reflect different stages or qualities of how organizations operate.

  • Centralized
  • Decentralized
  • Networked
  • Eco-System

The leadership challenge is to develop tools that allow the organization to change and evolve into these different stages, depending on what is needed.

Organization 1.0: Centralized:

In 1.0 Organizations, decision making power is located at the top of the pyramid. It is centralized, top-down, often with formalized roles.

These 1.0 structures work well as long as the guy (or core group) at the top is really good and the organization is relatively small and agile.

However once organizations or companies begin to grow, they need to decentralize in order to move decision making closer to the markets, customers or citizens. The resulting 2.0 structures are defined by both hierarchy and competition.

Organization 2.0: Decentralized:

In a 2.0 organization structure, decentralization enables the source of power to move closer to the periphery. The result is a functionally, divisionally or geographically differentiated structure in which decisions are made closer to the markets, consumers, communities or citizens.

The good thing about 2.0 structures is the entrepreneurial independence of all of its divisions or units, its accountability and its focus on meritocracy.

The bad things is that no one is managing the interdependence, the white space between the units. Which brings us to Org 3.0

Organization 3.0: Networked:

In 3.0 organizational structures the source of power moves even farther from the center. It originates from beyond the boundaries of the organization. The result is a flattening of structures and the rise of networked relationships. Power emerges from the relationships to multiple stakeholders across boundaries.

How many people report to me matters less than the quality of my stakeholder relationships inside and outside the organizations including relationships through social media.

A good thing about 3.0 structures is empowerment and net-worked stakeholder connections.

A bad thing is the increased vulnerability in the face of disruption or being sidetracked by vested interests, because small groups can organize their lobbying activities much more easily than large groups.

Organization 4.0: ECOSYSTEM:

4.0 structures operate by connecting and cultivating the entire living eco-system that is organized around a shared purpose. “Swarm” organizations and Agile or Teal based organizations are all based on self-organizing circle structures in the context of shared purpose and institutional interdependency.

As the decision making is being pushed even further to the frontline of organizations (empowering), these flattened and fluid structures of decision making only work well to the degree that the mindset of the participants has shifted from ego-system to eco-system awareness.

This means that the decision making circles develop the capacity to act from local knowledge while being aware of the cross-organizational inter-dependency and aligned by a shared purpose.

Institutional Inversion:

The evolution of today’s organization structures show a clear pattern: institutional inversion, that is turning inside out and outside in.

In the organizational context, institutional inversion applies to many of the core functions of management, as evidenced in the rise of crowd-sourcing(inverted R & D), crowdfunding (inverted finance), swarm intelligence and other ways of harnessing collective intelligence by inverting top-down, silo structures to distributed organizing.

What is in it for your organization? Where are you and where do you need to move?

This write up is based on Theory U by MIT Prof. Dr. Otto Scharmer

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