How Governance Leads to E-success

FRAMINGHAM (02/21/2000) - Growth in e-commerce revenue is fueling demand for new organizational models. An e-business requires holistic governance structures to rapidly exploit dynamic market opportunities. This requires looking beyond traditional joint ventures or spin-offs to create entities that can embody the flexibility, diversity, openness and dynamics of e-driven paradigms.

Most corporations reflect the industrial-era, command-and-control hierarchies that were prevalent when information took weeks or months to disseminate.

Today, information is immediately available to suppliers, customers and employees - none of whom can wait for decisions to descend from a hierarchy. To ensure that e-businesses are as flexible and dynamic as the markets they service, their infrastructure must facilitate decisions and actions at the outermost level possible. The "chaordic" organizational model can address these requirements.

The term chaordic was coined by Dee Hock, founder and CEO emeritus of Visa International Inc. and author of Birth of the Chaordic Age (Berrett-Koehler, 1999). According to Hock, a chaordic organization is any self-organizing, self-regulating, adaptive, nonlinear, complex organization whose behavior harmoniously exhibits characteristics of both chaos and order. It exhibits diverse patterns and probabilities not governed or explained by the behavior of its parts - in harmony with the fundamental organizing principles of nature and evolution.

Chaordic behavior is innate to e-businesses because they rely on the Internet, which exhibits diverse patterns and probabilities not governed or explained by the behavior of its parts, and other entities that must compete and cooperate in order to succeed. Internally, marketing, sales, distribution, warehouse, procurement and other business units must integrate workflow, data and systems into e-business strategies. Externally, the success of an e-business depends on cooperation from vendors, suppliers, distributors, design teams and customers, who lie beyond the control of internal chains of command.

Hock created Visa, which handles $1.25 trillion in transactions annually for 22,000 member institutions, to save the failing credit-card industry in the late 1960s. One can find similarities between the challenges facing the credit-card industry and today's e-business environments. Visa's founding members needed a way to concurrently compete and cooperate - or drive each other out of business. They found that they could reach more people and penetrate more markets working together, so they created an organization where everyone participated and no one dominated: Visa.

As outsourcing, supply-chain diversity, Internet dependency and competition drive companies toward nontraditional strategies, new collaborative strategies must emerge. Creating a chaordic organization to meet these challenges requires drafting a purpose and guiding principles, identifying participants, designing an organizational structure and embedding these elements into a constitution.

It's the foundation for a legal entity allowing participants to carry out practices in support of the purpose, principles and structure.

Consider the creation of an e-business within the automotive industry, whose purpose is to coordinate end-to-end supply-chain management. Member companies, including suppliers, automakers, distributors and retailers, would establish a chaordic governance structure that ensured the equitable availability of supply-chain information among all participants. The chaordic e-business strategy employed by this entity would maintain a supply-chain knowledge base to expedite the tracking and flow of parts and products, facilitate the shift to e-commerce and accommodate the morphing of existing distribution chains.

A chaordic organization can support many e-business strategies. A conglomerate might launch a chaordic e-business for its subsidiaries. Or an industry might establish a member-owned company immune to a takeover, like Visa. The Internet, which is being challenged by crackers, governments and monopolies, could establish a chaordic governance structure. Addressing these issues will be difficult, but mobilizing relevant and affected parties under a common alliance is a big first step. Ultimately, an e-business requires diverse factions to work toward common objectives in an information-driven world. Hierarchical infrastructures are ineffective in dealing with this challenge, and chaordic governance structures may be a good approach for many industries.