The Connected Company by Dave Gray & Thomas Vander Wal

Success is no longer guaranteed if you create your company as an ivory tower. Power is shifting to your network of customers, partners and employees. Armed with the new tools of social media, they can set the agenda and determine how your business should operate and interact in its market.

Product driven economies, powered by manufacturers, are giving way to the power of the customer. And organizations that have been traditionally product driven are less able to adapt and respond.

In their book The Connected Company, the authors Dave Gray and Thomas Vander Wal have created a manifesto on how to restructure your organization to use platforms and networks. Let’s get started!

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We no longer live in an industrial economy. We live in a service economy. Recent analysis shows that the majority of business growth in the coming decades will be from services. But unlike products, services cannot be designed in isolation. They are co-created with customers.

Instead of thinking about products as the means to an end, we need to think of them as a tool, a component of a service…an experience. Consider the iPhone. We use it to speak to colleagues, to get online information, to play games, perform banking, watch movies, and pinch, zoom, and tap a million little apps. The value add is in the services we use and the iPhone supports this.

Customers want services to be convenient for them, not for you. And they want to access them together, as with the iPhone. So to define our connected businesses we need to connect to customers.

Lesson 2: Focus on Customers

Paying attention to a customer just makes common sense. So why are we so bad at it?

Basically we get distracted. As we become successful in our markets, we identify and create other potential growth areas. We become greedy and forget who feeds us – the customer. Equally, becoming too focused is also a problem. We forget that markets move and mature, and unless we de-focus we can miss the boat, and lose customers. We need to face the market. We need to listen, watch and learn.

Lesson 3: Focus on Learning

The authors suggest the problem is that while today’s companies are very good at processing information and producing outputs, they don’t know how to learn.

To adapt, companies must interact with their environment and seek continuous improvement, based on experiments and feedback. A connected company is a learning company.

However, learning is different than training. Training is emphasizing what you know and already do: old processes, habits and systems. Learning develops ways to deal with new, uncertain, and ambiguous situations. New innovations, creations and breakthroughs. If you’re not learning, you’re falling behind.

The authors suggest learning requires feedback to ensure improvement, and the most important critic is your customer. Customers not only compare your service to what you have done in the past, but they also compare you to alternatives, to your competitors.

Beware though….customers don’t always want services to be delivered consistently or in the same way as others. They want customization — services that are personalized to them.

Lesson 4: Be Organic

A connected company learns and adapts by working at the point of interaction with customers, where they can experience first-hand what the customer requires. How can you do this? Many of the problem areas have been addressed by the very people who created them: Technologists. They created complexity by giving us more tools and access to information. They also gave us the social media tools that let us connect with our customers.

Looking at traditional businesses, the authors compare them to trains on a track. There is a dedicated and unchangeable route between A and B, a route that is optimized for control and efficiency. To change the rails is both complex and expensive, so we devise ways to extend the rails, imposing further inflexibility. What we need to do is simple: get off the train altogether and embrace a different system and approach.

Connected companies are not hierarchies, divided into centrally controlled, functional parts. Connected companies are organic: complex systems working together, with each part a fully-functional whole in its own right. Connected companies are podular.

Lesson 5: Focus on PODS

The authors ask: How can you divide the workforce in your organization to optimize for innovation rather than efficiency? Their answer: supplement divisional thinking with podular organization. In a podular organization, you divide labour into “businesses within business,” each of which can function as a complete service in its own right, giving an increased level of flexibility and adaptiveness.

Podular design is like a franchise model: providing the pods with support and structure, while allowing then to do business in their own way to meet local challenges.

Pods are flexible, fast, scalable, resilient and independent. They are authorized to represent the company and delivery results to customers. Each can make adjustments without disrupting others. If a pod fails, there’s enough redundancy in the system to find the associated services elsewhere. There is a lot of tacit knowledge in each pod, as it is a small avatar of the larger business.

This means that when it’s time to scale up a particular service, a pod can reproduce itself by dividing into two pods, each of which can bring on new members with minimal growing pains. How big should a pod be? The authors suggest we use Amazon’s metric: two-pizza teams, or about 8-10 people. If you can’t feed the pod with two pizzas, it’s too big!

However here is a note of caution. A podular system is not the most economical way to conduct business. There is a lot of redundancy in podular structures, which means greater cost. The bet you make with a podular strategy is that the increase in value to customers, paired with increased resiliency in your operations, will more than offset the increase in costs.

Lesson 6: Focus on Platforms and Networks

The authors recommend that any podular organization have an underpinning support structure which networks the pods together. This allows them to coordinate activities, share learning, and increase the company’s overall effectiveness. This is how pods become more powerful.

Platforms support the work of the pods and gives them a way to coordinate in a peer-to-peer way. Platforms reduce friction and increase cohesion.

For a podular system to work, cultural and technical standards are fundamental, and appropriate boundaries must be defined. These are contained in the platform. But in every case, the benefits of the platform must exceed the cost, whether you measure that cost in money, time, or hassle.

Where the needs of one part of the organization differs from another, a balance must be created. Where change and variability are high, you want to be flexible and adaptive, as should your chosen platform. Where change and variability are low, a stable, reliable platform is best.

How do you make these tradeoffs? Look at your company’s business ecosystem and ask, “Where do we expect a lot of variety, and where do we expect things to remain stable?” Consequently, bureaucratic hierarchies are good for routine work, while podular networks function well in volatile or changing conditions.

Connected companies are living, learning networks that exist within larger networks. Network power comes from awareness and influence, not control. Leaders create clarity, trust, and shared purpose, while management focuses on designing and tuning the system to support learning and performance.

Lesson 7: Focus on Measuring

The authors tell us that as leaders of a connected company, we need to stimulate the company with ideas, energy, and emotion. As a leader, we should be the most connected person in the company.

When you lead a connected company, you are leading a network: a distributed control system that allows people and teams the appropriate freedom to do their work as they see fit. Connected leaders focus not only on those who are inside the company, but also on suppliers, customers, and investors.

The authors suggest a novel way of gauging how your business is performing: take the temperature of your company. Is it too hot, too cold, or just right? The right temperature for a company is a temperature that matches the pace of change in the business environment. It should be running at the same temperature, or slightly hotter than, customers and competitors.

A company that is running too cold will have rules that are so strict that they get in the way of the work. You will find people working “around” the system to get things done. Processes will be tightly coupled and over-coordinated.

A company that is running too hot will find itself reinventing the wheel, solving the same problems over and over again. Every project or initiative will be started from scratch, with no consideration for lessons learned in the past.

The optimal position? Goldilocks: not too hot, not too cold.

Lesson 8: POD Cultivation

So how do we go about creating pods? The authors give a number of suggestions.

We should focus on growing in a podular way. If we need to expand our organization, we should consider starting with a pod for the new initiative. Create the pod with the right number of people that can take on an autonomous role. Mix the pod with staff that can operate as self contained units, and support the pod with the core administrative platforms that already exist in the organization.

We should form new pods by seeding them with individuals from existing pods. In this way, tacit knowledge, as well as the passion and energy for the work, are maintained and spread as you grow.

We should create platforms that support rather than control, that minimize rather than create bureaucracy.

We should find podular people, and foster teamwork by ensuring staff are aware of the common goal and that the goals of sub-groups are not isolated from each other. Eliminate goal conflict within the organization and put your people first. Changing the company and creating pods means changing the underlying perspectives of traditionally focused people. They need to commit with their hearts as well as their minds. Find ways to engage their emotions.

We should launch a pilot pod. A pilot pod is an experiment that happens outside the regular structure of the company. Pilot pods are like special forces in the military: they operate outside the norm and are not subject to the same rules and restrictions as the regular forces. A pilot pod doesn’t have to be a whole new company. It can be a small experiment, like a new service or a cross-disciplinary initiative. But in order to learn and deliver real innovation, it must be independent and connected to the environment.