Time To Dismantle The Corporate Machine

One reason traditional companies are having trouble adapting to this reality is that they were born in an industrial age, where businesses were designed to be efficient machines that got their power from division of labor. However, these divided companies are a poor match for today's connected customers. Therefore, it's time for companies to become less divided and less mechanical. Instead of machines, they should be thought of as complex organisms that grow, change, and evolve. Or maybe they should be considered more like cities, full of interlocking neighborhoods, communities, agencies, and businesses whose growth must be loosely coordinated rather than centrally controlled.

Gray discusses Thomas Vander Wal's ideas on applying concepts from urban planning to social business, which were featured in a presentation at UBM's E2 Conference last year. Gray says Vander Wal, who is credited as a co-author, served as a "sounding board" for the central ideas presented in the book. The core ideas were laid out in a blog post in early 2011.

While "social business" has become popular as a marketing label, Gray believes "connected company is a description that means something to people--as opposed to a divided company, based on division of labor. What I've been surprised by and very energized by is not what it's called but what it is." The industrial organization that was so powerful for so long is giving way to the services economy, where most of the products we covet--like iPhones and Kindles--are actually gateways to services that represent the more important part of the business. In this era, businesses are judged by the quality of their services and how responsive they can be.

"I do think it's customers who are driving the inevitability of it," Gray says. Social networks are part of that power shift, but so are the consumer devices that now allow people to carry tremendous computing power in their pocket, he says. Instead of leading with the power of technology, enterprises are struggling to catch up.

The challenge is a bit like the one the military faces in an era of asymmetric warfare, where most of its opponents are loosely networked insurgencies rather than hierarchical armies. Just as the military is learning that "it takes a network to fight a network," businesses need to discover that "it takes a network to serve a network," Gray says.

Some organizations are better suited to making this transition than others. For example, the Nordstrom department store has such a strong tradition of allowing employees to act on their own initiative and do what's right for the customer that it will only be more successful in the social media era, he predicts.

One example of a company innovating to meet new demands is U.K. telecommunications company O2 that created a low-cost mobile phone service called Giffgaff--from an ancient Scottish word for "mutual giving"--that operates without traditional stores or service locations, with customers providing technical support for each other through an online community and actively participating in business decisions about the design of the service and its price structure. Because the entire service is run by about 20 people--a ratio of staff to subscribers of about 5,000 to 1--Giffgaff is able to charge about half the rate of competing services, allowing O2 to disrupt its own market before some agile startup did.

Most companies are not reacting so nimbly, however.

"So many forces in businesses focused on profit as the goal even at the expense of customer relationships and customer loyalty," Gray says. "That's really short-term thinking. In the old days, maybe you could drag that out for 20 years before your business collapsed. In this century, you won't be able to drag that out for very long."

Follow David F. Carr on Twitter @davidfcarr. The BrainYard is @thebyard and facebook.com/thebyard

Social media make the customer more powerful than ever. Here's how to listen and react. Also in the new, all-digital The Customer Really Comes First issue of The BrainYard: The right tools can help smooth over the rough edges in your social business architecture. (Free registration required.)