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Managing the 21st Century Organization

Article · April 2007

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 Managing the 21st
The Worker
Century Organization
of the Future
By Row Henson

By Valdis Krebs, orgnet.com

IF KNOWLEDGE IS POWER, WHAT IS CONNECTED

KNOWLEDGE?
Our knowledge economy operates on the complexities of
connections. All individuals, teams, communities, systems,
and other business assets are massively interconnected in
an evolving economic ecosystem. In the connected
economy, each network actor is embedded in a larger eco-
nomic web that affects each participant and, in return, is
influenced by that participant. In such a connected system
we can no longer focus on the performance of individual
actors – we must focus on system outcomes. The key is per-
formance of the connected whole. Figure 1. Hierarchy of the Traditional IT Department.
Efforts at making sense of this new world are beginning
to reveal some basic principles at work in the complex adap-
tive systems we call our organizations.

“There is a central difference between the old and new

economies:
the old industrial economy was driven by economies of scale;
the new information economy is driven by the economics of
networks...”
– Carl Shapiro and Hal R. Varian. Information Rules. 1998.

Recent research on productivity and effectiveness in the

knowledge economy provides insight into what works in the
connected workplace. Certain patterns of connections
appear around both effective individuals and successful
teams when performing knowledge work. Figure 2. How Work Actually Gets Done in the IT Department.

ORGANIZATIONS: OLD VERSUS NEW In hierarchies, everyone is linked to a boss above them.
When change was slow, a tall hierarchy with segmented Groups are not connected to each other except through
knowledge was the organizational structure of choice. This a common boss. Going outside the formal lines of com-
model was developed in the mid-1800s to run the railroads munication and authority is usually frowned upon in rigid
and worked very well to get the trains on time with minimum hierarchies.
accidents. This model worked well for 100 years until the In the knowledge economy, the organization structure
economy saw the influx of computers, copious amounts of has changed. The hierarchy is not gone. It still represents the
data, and rapid information flows. Figure 1 shows the hier- authority structure and the division of functional responsi-
archy of an IT department. The CIO is at the top, the direc- bility. The hierachy of old now shares the organization stru-
tors are at the next level down and report to the CIO, and cure with emergent networks that respond to dynamic
finally the managers are the bottom rows reporting to the environments. A new structure – representing information
directors. No one beneath the level of manager is shown on flow and knowledge sharing – reveals how things really get
the chart. For privacy reasons, the actual names of the done in the information age. This new structure is based on
employees are hidden and replaced by numbers. data gathered from employees via a survey.

2 2007 • Volume XI, Number 4 • IHRIM Journal

 FEATURE

How things get done is an overlay upon the formal struc-

ture of the hierarchy – it is not a substitute. Figure 2 shows
the exact same organization as Figure 1, except this
diagram links together the nodes that actually work
together to accomplish the organization’s goals. No longer
is the top of the diagram a better location than the bottom
of the diagram as in Figure 1. Old hierarchical segmenta-
tions disappear in this boundaryless view of the organiza-
tion in Figure 2.

INSIDE THE ORGANIZATION: INDIVIDUALS

Human capital is the latest trend in human resources. Is
it the key to effective employees? Is it what you know
(human capital) or who you know (social capital) that leads to
success? This has been often debated with good arguments
on both sides. Most managers today would side with the
“what you know” crowd.
In the late 1980s, management researchers were starting
to notice that some managers were better than other man-
agers at accomplishing objectives through relationships.
John Kotter of the Harvard Business School discovered that
effective general managers spend more than 80 percent of
their time interacting with others. Other management
scholars were also starting to see the importance of con-
versations and relationships in managerial work. Individual
mastery was no longer the key – it was human capital and social Figure 3.Two Nodes with Good Social Capital.
capital working together to create productivity and innovation.
Ron Burt of the University of Chicago, a leading A great part of today’s workforce in many companies is
researcher on the social capital of managers found, through from the “baby boom” generation – a group that is rapidly
numerous studies, certain patterns of connections that reaching retirement age. Much of an organization’s exper-
individuals build with others brings them higher pay, earlier tise is located in these experienced employees. Are they
promotions, greater influence, better ideas and overall critical in accomplishing your organization’s goals? Are they
greater career success. Burt believes that good social the “go-to” people for advice, knowledge, opinions and
capital provides a much higher return on investment in mentoring? An organization’s knowledge sharing and learn-
human capital – the two work together. ing are often informal processes dependent upon social ties
Arent Greve, a researcher at the Norwegian School of for transmission. What you know often depends on who you
Economics, is also interested in the contribution of human know. Having contacts that mentor you and pass you good
and social capital to organizational outcomes and individ- advice and knowledge are key to career success. This is
ual productivity. He studied project managers in a knowl- social capital in action.
edge-based services company in Europe. He viewed human Figure 4 shows a research lab. The links are directional
capital as the knowledge and skills attained by the individ- and show who goes to whom for expertise and advice. The
ual over his/her career. Social capital was defined as a prop- nodes vary in size based on how close the employees are to
erty of personal networks – the ability to reach others, retirement age. The larger the node, the closer they are to
inside and outside the organization, for information, advice retirement.
and problem-solving. He found something very interesting. Once we map the “go-to” network, we can measure it
As expected, both human capital and social capital had a also. Based on the pattern of links – who goes to whom for
positive effect on productivity. Unexpected was the domi- advice and expertise – we can measure this network in a
nant affect of social capital – project managers with the way similar to how Google measures the Web. We can
best personal networks were most productive! They were determine who the key people are in the flow of expertise
better able to coordinate tasks and find the knowledge nec- around this research lab. Luckily, the top two experts are
essary to accomplish the goals of their projects. not near retirement, but others in the top 10 are. The three
Figure 3 shows two nodes – the larger ones – that have largest nodes and one of the medium nodes are in the top-
good social capital in the project network. Both nodes 10 of expertise dissemination in this network. Seeing this
quickly reach out into all parts of the project. Between the diagram, the lab manager immediately started to plan how
two they are aware of what is happening in every corner of she would disseminate the knowledge and expertise of the
the project. upcoming retirees. She chose mentoring as a first step.

IHRIM Journal • Volume XI, Number 4 • 2007 3

 FEATURE

Figure 5 shows a network map of project teams. A line

connecting two teams indicates a two-way information flow
or exchange of knowledge.
This network of 17 project teams all work on sub-assem-
blies to a larger product. The teams are composed of mostly
engineers, technicians and project managers. All teams have
less than 10 members. Three clusters are evident in the
network of project teams.
Before we look at how to improve the overall connectivity
of the network, let’s digress back to social capital. Which
team has the best social capital in this network? Which team
can access all of the knowledge and resources in the network
quicker than the others? (Hint: this network is drawn to
reveal the answer.)
Common wisdom in networks is “the more connections,
Figure 4. A Research Lab Showing Connections Close to Retirement. the better.” This is not always true. What is always true is
“the better the connections, the better.” Better connections
INSIDE THE ORGANIZATION:TEAMS are those that provide you access to nodes that you cur-
Working in a high-tech firm in Silicon Valley, Morten rently do not have access to. Although Team F and Team Q
Hansen from Stanford University had a similar research have many connections each and have excellent local access
agenda to Greve. The key difference was that Hansen was (to the nodes near them), they have only fair access to the
interested in the productivity and effectiveness of teams. rest of the network. Team O has the best social capital, aka
Hansen found that teams who could easily reach other network benefits, in this network of project teams. Team O
teams and access the knowledge they needed were more achieves this with only three direct ties – it is connected to
successful than teams with poor network connections. Both others who are well connected. Team O’s indirect contacts
Greve and Hansen found that the ability to reach a diverse bring access to information and knowledge not available
set of others in the network through very few links was the locally.
key to success for both individuals and teams. The average path length in this network is 3.45, with many
Hansen took his research one step further. He examined paths longer than the network horizon. Even in this small
the difference between those teams that had many direct con- network there are nodes, i.e., teams, which are nearly blind
nections to other project teams and those that used both to what is happening in other parts of the network.
direct and indirect ties to reach the resources they needed. In the summer of 1998, writing in the scientific journal
Hansen found that those teams that used only direct ties to Nature, a stir of excitement was generated by two mathe-
seek and find information were soon overwhelmed with too maticians from Cornell, Steven Strogatz and Duncan Watts.
many connections! The teams that used the power of the indi- While investigating small-world networks (emergent networks
rect tie, while at the same time limiting their direct ties, were with many clusters), they discovered that a few randomly
more successful – they did not spend as much time interact- added crosscuts between unconnected clusters would
ing with the network to get what they needed. improve, i.e., lower, a network’s characteristic path length
significantly. The benefits were not just local, but spread
throughout the network, and this improvement could be
achieved with just a few added ties in the network. Very
small adjustments could cause large positive changes – a
common dynamic in complex adaptive systems.
Looking back on our project team network in Figure 5,
how can we improve the connectivity with just one added
link? Which two nodes would you connect to bring everyone
in the network closer together?
Although many combinations will increase the access of
everyone to everyone else, the greatest measurable effect is
when we add a crosscut between Team Q and Team F. The
average path length drops a whole step! The longest path in
the network is reduced from seven steps to four steps. In
human networks, the fewer steps in the network path, the
quicker information arrives with less distortion.

Figure 5. A Network Map of Project Teams.

4 2007 • Volume XI, Number 4 • IHRIM Journal

 FEATURE

node is colored according to the person’s department – red,

blue, or green. Yellow nodes are consultants and other spe-
cialists hired to work on this project. Grey nodes are not
formal team members but are external experts consulted
during the project.

Figure 6. Adding a Crosscut from Team F to Team Q.

The connection between Teams Q and F may be the

optimal connection in network efficiency, but it may not be
a practical connection. Both of these teams already have
many ties and may not have the time and energy to support
another one (remember what Hansen discovered about too
many direct ties?). What is an alternative connection? If you
cannot connect the highly connected nodes, how about con-
necting their respective network neighbors? Instead of con-
necting Q and F, how about connecting D and Z? This Figure 7. Organizational Network Showing E-Mail Flows.
connection will not reduce the path length as much, but it is
between nodes that are not overburdened with connections. The client’s IT department gathered the e-mail data and
A sparse radial network in which your direct ties are con- provided a snapshot every month of the project. Only infor-
nected to others that you are not connected to, has been mation from the To: and From: fields was used – the Subject:
shown, by Burt and others, to provide many benefits and line and the actual content of the e-mail were ignored. Only
opportunities. A diverse radial network, with many unique e-mails addressed to individuals were used – those
indirect ties, is appropriate for monitoring what is happen- addressed to large distribution lists were disregarded. A
ing in the organization, and for discovering pockets of grey link is drawn between two nodes if two persons sent e-
knowledge and expertise. Yet, this type of network may not mail to each other at a weekly or higher frequency.
be useful for transferring knowledge. It depends on what In addition to the network visualizations, network metrics
type of knowledge needs to be shared. Explicit knowledge, were generated to see how well the various departments and
which can be easily codified, can be transferred indirectly groups were interacting. Although the project had a formal
through various technologies such as e-mail, FTP, the World hierarchy, individual network metrics revealed emergent
Wide Web or documents. For example, sharing a formal pre- leadership and expertise throughout the project.
sentation, done previously for the same customer, is easy The network mapping began after a key milestone was
though sharing the context and experience around the pre- missed in the fourth month of the project. They continued
sentation may not be so easy. Complex tacit knowledge for the next 11 months. The project leadership reviewed the
knowledge requires direct interaction and sharing of experi- network maps and metrics each month to monitor the
ences between two or more individuals. To transfer tacit health of the project. No further milestones or deadlines
knowledge, a direct tie with the knowledge source(s) must were missed.
be established. Trust and understanding must be built The diagram in Figure 7 shows the project network soon
between sender and receiver – this is similar to apprentice- after the missed deadline. Notice the clustering around
ship. Explicit knowledge travels over computer networks, formal departments – blues interacting with blues, greens
but tacit and complex knowledge needs to be shared and interacting with greens. Several of the hubs in this network
learned via human networks. were under-performing and often came across as bottle-
The organizational network map in Figure 7 shows the e- necks. Project managers saw the need for more direct inte-
mail flows amongst a large project team in a Fortune 100 gration between the departments. One of the solutions was
company. It is an X-ray of how the project actually works! very simple, yet effective – co-location of more project team
Each person on the team is represented by a node. Each members. A surprising solution in the age of the Internet!

IHRIM Journal • Volume XI, Number 4 • 2007 5

 FEATURE

Another simple solution was to allow direct interactions solution is to attempt to mine knowledge from employees,
between the various technical employees, without going codify it, and store it in a large database. Many large con-
through the various assistant project managers, who ended sulting firms tried this approach in the 1990s with usually
up being bottlenecks early in the project. These interven- sub-par results. They found that people were not always
tions, along with others, improved the information flow, and willing to make public their best knowledge and that codify-
reduced the communication load on the hubs, whose per- ing tacit knowledge was like trying to nail jelly to the wall. It
formance improved later in the project. did not work, and just left a mess.
Why not use the power of the network itself to create a
INSIDE THE ORGANIZATION: COMMUNITIES AND solution? Improve the organizational network and then use
CLUSTERS technology to help people communicate across wide spans
Network ties are distributed unevenly in organizations. of the human network. At first blush, improving an organiza-
People that work together form networks together – clusters tion-wide network may seem an overwhelming task. Where
emerge around established work relationships. Engineers do we start? First, look at the networks and communities of
working on Project X form a cluster, those working on Project practice/interest/knowledge that have organized around a
Y form a cluster, and those working on Project Z form a specific topic, product, service or customer. Usually, the
cluster. Everyone knows everyone else within the local whole organization does not have to be included in the
cluster, and yet only a few individuals have boundary span- problem space. Second, map out the network nodes and
ning ties to other clusters. Strong, frequent ties are usually their connections (who goes to whom for expertise/knowl-
found within clusters, while weaker, less frequent ties are edge/advice on X?). From this network map, you can see the
found between clusters. various clusters and how they are connected.
Clusters of concentrated connections appear throughout Figure 8 shows an emergent community of practice at
an organization and throughout industries. Some clusters IBM. This was not a prescribed community – it was not
have many ties outside the group, while other clusters have formed under direction of management. This community
only a few. Poor connections between clusters result in very formed over time, and survived over time, based on common
long path lengths throughout the organization. In such a interests, knowledge and goals.
network it is easy to access those in your cluster but not
those in other clusters. This often results in distant clusters
not knowing what information and knowledge is available
elsewhere in the organization.
Often, the knowledge you need is in clusters other than
your own. Networks have a horizon beyond which it is diffi-
cult to see what is happening. Research by Noah Friedkin, at
the University of California at Santa Barbara, has shown that
this network is approximately two steps in a human network
– your direct contacts and their direct contacts. Around
three steps out, things are real fuzzy – you do not have a
good idea of what is happening in that part of the network.
Beyond three steps, you are blind to what is happening in
the rest of the network – except for obvious ”public” infor-
mation known by everyone. So the popular idea of it being a
”small world” because we are all separated by an average of
six degrees is misleading. Six degrees is actually a very large
world – one, two and three degrees is a small world! It is
usually those separated by two degrees where the ”small Figure 8. Emergent Community of Practice at IBM.
world” discoveries happen – it is here where you discover the
person next to you on the plane is related to a friend from We were looking for the emergent organization – how
your university days. work was really done – what the real structure of the organi-
In a network of very long path lengths between clusters, zation was. Figure 8 shows us how work was really accom-
your ability to find the knowledge or information you need is plished in the organization. Two nodes/people are linked if
very constrained. If the knowledge that you seek is not they both confirm that they exchange information and
within your network horizon (one or two steps), then you resources to get their jobs done. Each work group involved
assume it is not available in your organization and you rein- in the study received a different color node.
vent it, or pay for it on the outside. Exasperated with the The network visualization immediately revealed that
network horizon in his organization, a former CEO of HP there was an emergent cluster of specific professionals in
once lamented, “If HP only knew what HP knows.” the organization. It appeared to be the key to getting things
The natural response in many organizations is to throw done. The central members of the community in Figure 8 are
technology at the problem. A very poor, yet quite common, connected by the darker links.

6 2007 • Volume XI, Number 4 • IHRIM Journal

 FEATURE

Teams are not made of talent alone – whether in business

One of the benefits of consulting with or in sports winning teams have something more. It is how
the talents of individual players intersect and interact that
organizational network analysis is distinguishes a good team from a collection of good players.
having leading edge clients. From the New England Patriots, to the Detroit Pistons, to
the Chicago White Sox – teams without a superstar at every
position often win championships.
Vancho believes that team connectivity and communica-
Upon further investigation, we found this central group of tion distinguishes the great teams from the also-rans.
professionals had been together for many years, in spite of After experiencing success with social network analysis
all the business process re-engineering, down-sizing and (SNA) in the workplace, Vancho wondered if SNA could be
merging/consolidation activities that took place at their applied equally well to sport. His brother, Sasho, was coach-
company during the 1990s. A professional network/commu- ing a Division I NCAA Men’s Soccer team – University of
nity, once established, is hard to break up – even with much Maryland Terrapins – that was struggling. Following a rise to
manipulation of the formal organization. Thick ties of trust a level of success, the “Terps” were in a “funk,” as all teams
survive both the intended and unintended pushes and pulls are bound to be. Could it be they had enough talent, but
of organizational change. that the team chemistry was wrong? Sasho was willing to
Doctor’s use X-rays and CAT scans to diagnose the “think outside the box” for a solution.
human body because they are quick, non-invasive proce- Vancho and I took an organizational network survey and
dures that provide good information for diagnosis of a wide adapted it to team sports. We divided the questions to
range of possible medical conditions. We use social network cover both on-field and off-the-field team chemistry. We
analysis in a similar way, to scan or X-ray communication included questions that would reveal emergent leadership
networks in a workplace and discover what is really happen- on the team. Vancho gave the adapted survey to the
ing inside complex organizations. Maryland soccer team and discovered some interesting
dynamics, which Coach Sasho immediately put to use. To
LEADING EDGE HR MANAGEMENT make a long story short, the year following the network
One of the benefits of consulting with organizational analysis, the team that was rich in talent, now had their
network analysis is having leading edge clients. Not only are chemistry balanced, and the results were obvious. They won
they open to new methods to improve their organizations, the NCAA championship!
they usually end up teaching me quite a bit. One such client A common reason for the failure of many mergers and
is Vancho Cirovski, vice president of Human Resources at acquisitions is the failure to properly integrate the two com-
Cardinal Health. Vancho, an expert soccer player and coach, bining organizations and their cultures. Although a formal
first noticed an interesting phenomenon on the playing hierarchy combining the two organizations may be in place,
field. Teams that were more integrated and communicated the right work relationships are never formed and the merging
well amongst themselves on the field, more often than not, organizations remain disconnected. Ralph Polumbo, vice
beat a collection of individually superior players who were president of Integration for Rubbermaid’s 1998 acquisition of
not interacting well on the field. I saw a similar phenomenon its European competitor, Curver, wanted to make sure the two
on my son’s soccer team. They had good players, but were organizations were combining effectively. He decided to map
divided up into two cliques that did not get along with each and measure the melding of information flows, work relation-
other – the team as a whole consistently underperformed. ships and knowledge exchanges – connections that help cul-
On a team, it is not the sum total of individual talents, it is tures combine. His vision was one of a boundaryless
the chemistry of the mix that matters! organization with no fragmentation along former constituen-
Vancho saw the same effect in project teams inside orga- cies. He wanted to track where integration was happening and
nizations. He has summarized these concepts of managing where it was not occurring. By examining his human and
connected organizations using Einstein’s famous formula: social capital concurrently, he was able to visually monitor
the successful integration of both organizations.
E = MC2 Figure 9 shows the initial map of this cross-country
• M is the Mastery of each individual (human capital). merger. The acquiring organization is shown by the red
• C are the Connections that join individuals into a com- nodes and the acquired organization by the green nodes.
munity (social capital). Early in the merger, there was a lot of interaction within old
• C is the Communication that flows through those boundaries – reds talking to reds, and greens talking to
Connections. greens. This improved over time as the integration of the
• E is the resulting Effectiveness of the team or organization. two company cultures was monitored and changes were
made where necessary. The two cultures were eventually
Vancho further stipulates that the two Cs, communication woven together in a successful integration.
and connections, combine to form another C: chemistry, which
leads to team or organizational effectiveness.

IHRIM Journal • Volume XI, Number 4 • 2007 7

 FEATURE

ees with a diverse network of ties can create shortcuts

between departments or teams and greatly improve
overall information flow and knowledge sharing between
key parts of the organization. Exchanging well-connected
employees between two departments creates an overlap
which enhances the transfer of information and influ-
ence between the two groups.

For the HR department it is no longer sufficient to just

“hire the best.” You must hire and wire! Start new networks,
help employees and teams connect to existing clusters and
communities. Connect the unconnected for the benefit of
both the employees and the organization!
What is connected knowledge? A competitive advantage!
Your competition may duplicate the nodes in your organiza-
tion, but not the pattern of connections that have emerged
through sense-making, feedback and learning within your
business network. And if you get Vancho’s take on Einstein’s
formula correct, then connected knowledge is pure energy!
In the 1992 U.S. presidential race, one simple phrase
refocused and re-ignited a jumbled campaign effort by Bill
Clinton – “it’s the economy, stupid.” Adaptive 21C busi-
Figure 9. Initial Map of Cross-Country Merger. nesses see the benefits in managing connected organiza-
tions. We can adapt the old campaign slogan to reflect the
new business reality – “it’s the connections, stupid!”
ADVICE TO HR IN THE 21ST CENTURY
How can HR managers improve the connectivity within
their 21st century organization? Here are a few places to get
started: Valdis Krebs is a management consultant, researcher, trainer,
• Look beyond the individual – uncover their intercon- author, and the developer of InFlow software for social and organiza-
nections and multiple group memberships. Who are tional network analysis [SNA/ONA]. InFlow maps and measures
the linking pins that transfer information and knowl- knowledge exchange, information flow, emergent communities, networks
edge to key places in the organization? of alliances and other connections within and between organizations and
• Know the difference between tacit and explicit knowl- communities. Since 1987, Valdis has participated in almost 500
edge and how it is shared and transferred. Tacit knowl- SNA/ONA projects. Clients such as IBM, Google, Northrop
edge travels in human networks, while explicit Grumman, Lockheed-Martin, Raytheon, Boeing, Europol, Aventis,
knowledge can be transferred on computer networks. Solvay, Merck, Genentech, Cardinal Health, Kaiser Permanente, and
• Reward people for directly sharing their know-how, for various government offices, and hundreds of independent consultants
including others in their knowledge-sharing networks. use his software and services to map and measure networks, flows, and
Connectivity is the key in the 21st century – reward the relationships in organizations, communities, and other complex human
connectors in your organization! systems. He is an often quoted expert on network analysis and network
• Utilize computer systems that facilitate conversations weaving. His work has been covered in major media including
and sharing of knowledge – think communication, not Business Week, Business 2.0, The New York Times Magazine,
storage/retrieval. Wikis, blogs, online communities, are Fast Company, CNN, Entrepreneur, First Monday, Optimize
all social media that are producing payoffs in organiza- Magazine, Training, and PC. Krebs has undergraduate degrees in
tions of various sizes. Mathematics & Computer Science, and a graduate degree in
• Help women and people of color connect to key knowl- Organizational Behavior/Human Resources and has studied applied
edge flows and communities in the organization. Artificial Intelligence. He has given invited talks on organizational net-
Inclusion into “what is happening” in the organization works at UCLA School of Public Policy and The Anderson School of
may help eliminate the glass ceiling and improve the Management, Michigan State University School of Labor and
retention of these valuable resources. Industrial Relations, Weatherhead School of Management - Case
• Recruit new hires through the networks of current Western Reserve University, Cleveland State University, University of
employees – they will be happier, adjust quicker, and Michigan Business School and many others. He can be reached at
stay longer. “It takes one to know one” is a useful lesson [email protected].
when recruiting new employees.
• When transferring employees to new projects or depart-
ments keep in mind their connections. Exchanging employ-

8 2007 • Volume XI, Number 4 • IHRIM Journal

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