| (Doherty) offered a "2x2" rule-of-thumb strategy for doing this based on the levels of strategic risk and in-house ability associated with the action. |
Extending Organization Boundaries? Not Whether, But How.
"What we are looking at is a fundamental challenge to our assumptions about which corporate structures work," commented Daniel Hayes in response to the recent piece on the future bounds of the organization. Raman Julka was just as dramatic: "The generic value chain described by Michael Porter is being fragmented by organizations; value addition ... is taking place in numerous forms ..." Their comments reflected the general assumptions among respondents that organization boundaries will continue to expand, with better or worse (ranging up to "ruinous") results for those engaged in it.Those organizations thought to be most able to extend their boundaries are those able to work in a "componentized" manner, with "certain pieces of technology or innovation that can be outsourced" (Sarang Kulkarni), those able to employ the open standards of the Internet and willing to transfer databases to a "rival supplier" in the event of an unsatisfactory relationship (Joshua Doherty), and those maintaining a highly focused in-house R&D capability while outsourcing small portions of strategic needs associated with this capability in order to preserve proprietary information (Kulkarni).
Doherty was concerned that organizations might extend their boundaries without a clear strategy. He offered a "2x2" rule-of-thumb strategy for doing this based on the levels of strategic risk and in-house ability associated with the action. Where both are high, he suggests "insourcing." Where both are low, outsourcing is the answer. Where ability is high and strategic risk low, an effort to establish a separate business opportunity (by "spin off" or other means) might be in order.
Of course, the toughest decisions often are associated with situations in which strategic risk is high but in-house capability is low. Here Doherty suggests a strategic alliance with the purpose of upgrading in-house capability as at least one alternative. Those who have spent a great deal of time examining strategic alliances and their somewhat checkered record might offer a word of caution here. They would ask: Do the justifiably selfish purposes that bring an organization to a strategic alliance contain the seeds of the alliance's demise?
The technological, social, and legal environment appears to favor further extension of organization boundaries. In the future, will this phenomenon be limited primarily by the environment, or by the ability of managers to take advantage of it? What do you think?