In the early 20th century, the great sociologist Max Weber noted that the sweeping industrialization taking place would lead to a change in organization. As cottage industries were replaced by large enterprises, leadership would have to become less traditional and charismatic and more organized and rational.
He also foresaw that jobs would need to be broken down into small, specific tasks and be governed by a system of hierarchy, authority and responsibility. This would require a more formal mode of organization—a bureaucracy—in which roles and responsibilities were clearly defined.
Over time, the likes of Vanderbilt, Carnegie and Ford were replaced by professional managers and the nature of work became less that of sweatshops and more that of “the man in the gray flannel suit.” Today, we are undergoing a transformation every bit as dramatic, a shift from hierarchies, strategies and tactics to networks, platforms and movements.
Let’s consider the case of John Antioco. As CEO of Blockbuster Video, he moved quickly to confront the threat posed by Netflix. He abolished late fees, recruited an effective digital team and built an impressive online platform. He then combined digital and physical assets to create Total Access, a service that allowed customers to rent by mail and return to the store.
Soon, Blockbuster was gaining ground against Netflix, but Antioco was thwarted by his own internal networks. Investors balked at the costs of the changes—about $400 million—while franchisees worried about the threat to the core business and put up fierce resistance. Antico was fired in 2005, the new CEO abandoned the strategy and soon the firm was bankrupt.
It was around the same time that General Stanley McChrystal encountered a similar problem in Iraq. Although he led some of the most elite forces in the world—and they were winning every battle—he was losing the war. The enemy he faced, made up of loosely connected small groups, was able to consistently outmaneuver him and his troops.
Still, he didn’t make major changes to his strategy or tactics. He saw that “it takes a network to defeat a network,” and transformed his forces by shaping the connections between his troops rather than trying to increase the efficiency of individual teams. By 2006, the leader of Al Qaeda in Iraq, Abu Musab al-Zarqawiwas dead and the terrorists were on the run.
Once you start thinking in terms of networks rather than hierarchies, it becomes clear that we must change how we do things; and not just within organizations, but also in how we approach a competitive marketplace. As it turns out, firms that seek to strengthen industrial networks have a big advantage over those that seek to preserve hierarchies.
To see what I mean, let’s look at the Route 128 corridor outside Boston. In the 1980’s, with firms like DECand Apollo Computer, as well as world class research universities like MIT and Harvard, it seemed poised to dominate the technology industry. Yet by the 1990’s, it was clear that the baton had passed to Silicon Valley.
In her book Regional Advantage, AnnaLee Saxenian explains why. While DEC and Apollo were vertically integrated firms that bound employees through non-compete contracts, their Silicon Valley competitors such as Hewlett Packard and Sun Microsystems embraced open technologies, built alliances and allowed their people to job hop.