Creating New Wealth Through Organizational Design

The chief problem that companies face today is that they are using 20^th century strategies to compete in the 21^st century. Strategic models for the 20^th century made the assumptions that capital was scarce, interaction costs were high and that vertically integrated structures were the key to efficient operation. Fast forward to the 21^st century and the companies that are thriving are tapping into employees’ knowledge, relationships and hidden talents. They are using new performance metrics measuring profit per employee, rather than returns on capital. The reason for this is that in the 21^st century, capital is not scarce, but talent is. The time has come for executives to develop the organization as a strategic need that will allow companies to compete no matter what the market situation.

When you analyze the top 30 companies by market capitalization, it is impressive to note that from 1995-2005 they increased their profit per employee from $35,000 to $83,000. In addition, the number of people employed on average, by these companies increased to 198,000 from 92,000.

Magic Formula

20^th Century formula
Total profits = returns on capital and capital deployed

New formula for the 21^stCentury
Total profits = product of profit per employee and total number of employees

For example, a company of 10,000 employees increases profit per employee by $30,000 that is an increase in profits of class=”MsoNormal”>$300 million. When a company establishes this type of culture, it creates a system where specialized skills are shared and the more employees you have, the more profits you receive. It is also done with less risk and minimal investment. In addition, talent is difficult to replicate, while products are being commoditized at an alarming rate. The companies that will win in the 21^st century are those that can establish a “One Company” governance structure focused upon knowledge and talent markets and organizational designs intended to maximize collaboration among talented employees that create today’s wealth.

Building Blocks = PEAR System

The process of increasing profit per employee lies in improving organizational design as a strategic imperative. In order to achieve these results, companies need to focus on mobilizing labor, capital and mind power into profitable institutional skills, intellectual property, networks and brands. How do you start the process? The key to this process lies in the “PEAR” System. “PEAR” stands for Profile, Educate, Assess, Reinforce. By putting employees through this sequential regimen, organizations are able to improve design efficiently. By profiling the organization and its people, the company will obtain a snapshot of what they’re working with from both a human capital and process perspective. As a result of the education and assessment phases, an organization can conclude upon which people can be the keystones in the organizational design. Finally, reinforcing this knowledge ensures that this 21^st century culture is driven throughout the organization and leaves its indelible mark on the team.

We would like to leave you with some food for thought as you assess your 20^th century strategies in the 21^st century global economy.

• Who are your “Knowledge” workers?
• How can you discover them?
• Which workers collaborate effectively?
• Which practices are, or are becoming obsolete?
• How and when should you start?