Transforming business structures to hyborgs

Employment Relations Today Winter 2000 5

Transforming Business Structures to Hyborgs

Arnold Brown is chairmanof the firm of Weiner, Edrich,Brown, Inc., consultants instrategic planning and themanagement of change. Heis coauthor, with his partner,Edith Weiner, of threebooks: Supermanaging(McGraw-Hill, 1984); OfficeBiology (MasterMedia,1993); and, most recently,Insider’s Guide to the Future(Bottom Line, 1997). He haspublished in a number ofprofessional and generalpublications and has been afeatured speaker at a varietyof business, government,and academic functions. Hehas been a guest lecturer onlong-range and strategicplanning at the HarvardBusiness School, the NewSchool for Social Research,the Wharton School, andelsewhere. He has servedas a technical advisor toPBS and has been cited asan authority on change by anumber of publications,including The Wall StreetJournal, Fortune, The NewYork Times, Business Week,Time, and others. He can bereached via E-mail [email protected].

© 2000 John Wiley & Sons, Inc.

TRANSFORMING BUSINESS STRUCTURESTO HYBORGS

Arnold Brown

The modern corporation began its rise to dominance in thelast years of the nineteenth century. It was, in essence, aprotective shell for the business enterprise—a means of

limiting liability—and a device for enabling the enterprise to raisethe large amounts of capital modern businesses were beginning toneed. For a hundred years or so, it served business well. Butchanges—in the opinion of many, revolutionary changes—are lead-ing to questioning whether the corporate shell is still suitable as wemove into a new era.

It is important to keep in mind the distinction between thebusiness enterprise and the corporate structure. Business can takea variety of forms, of which the corporation is only one. Because wehave gotten used to thinking of the business and the corporation asinterchangeable terms, we have lost sight of the fact that they labeltwo different things.

In former economic eras, there were a handful of dominantorganization types. They tended to have set and comparableprocesses and structures. Their operations generally conformedto widely held principles. Thus, we were able to develop entireconstructs of law, regulation, accounting, and worker benefits—all the bits and pieces that added up to the social contractsbetween the organization and its stakeholders and the greatersociety at large. This was true whether considering family farms,the guilds, trade associations, merchant entrepreneurs, ormegacorporations.

As we head into the twenty-first century, it is clear that there isno “typical” organization of any kind. Instead, whether small,medium, large, organizations are diversifying and multiplyingand morphing into “hyborgs”—hybrid organizations that have innerand outer workings in common with few or no others.

Arnold Brown

6 Winter 2000 Employment Relations Today

For example, major corporations are hardly comparable withone another any more, as operational structure could include anypermutation of:

• centralized versus decentralized control• virtual versus permanent versus contract employees• knowledge versus tangible assets• insourced versus outsourced work• wholly owned subsidiaries versus major stakes versus

minority stakes versus joint ventures versus strategic alli-ances versus licensing versus leasing

• local versus national versus regional versus off-shore ver-sus transnational versus global.

The term “hyborg” refers to both the cross-breeding of entitiesthat creates the new organization and the crossover of purposes,products, and services—the sum total of disintermediation,reintermediation, and creative entrepreneurialism. In effect, itmay be time to substitute the word “hyborg” for “organization,”since there is little by way of permanent organization that we canexpect from many of these entities.

Here are some examples of hyborgs:

• Willow Creek Community Church (a Harvard BusinessSchool case study) is more than a church. It is a communitycenter that encompasses entertainment, athletics, socialactivities, and volunteerism.

• DisneyWorld is transforming itself into a resort/commu-nity at the center of which is its theme park.

• Major malls across the United States are also becomingcenters of tourism.

DARWIN IN BUSINESSEvolution theory now pervades management thinking. As in

any biological systems, business organizations are undergoingrapid breeding and cross-breeding of disciplines, products, ser-vices, and systems. The offspring of these are cross-breeding witheach other to create newer disciplines, products, services, andsystems. This rapid change causes punctuated equilibrium and arush toward survival of the fittest.

Organizational stability once allowed “event pacing.” Now,intense competition and technology create constant punctuatedequilibrium and require “time pacing”—creating a rhythm thatmanagers can use to synchronize the speed and intensity of theireffort (for example, Netscape introduces a new product every six

In effect, it may betime to substitute theword “hyborg” for“organization,” sincethere is little by wayof permanentorganization that wecan expect from manyof these entities.



months, Intel adds a new facility every nine months), therebygiving the organization considerable evolutionary momentum.

In the corporate world, the harnessing of the evolution modelis becoming widespread. Technologically, we see the cross-breed-ing of communication satellites, fiber optics and the finite radiospectrum, as well as advanced semiconductor technologies suchas silicon germanium (SiGe) combining with new breakthroughsin digital signal processors (DSPs) and software to drive telecomoffsprings to new heights. Joint technologies will, for example,enable data to be transmitted over electric power lines into homesat a megabit per second. The Net is leading to mutations incommerce—small companies now have the ability to challengewhat were previously the “fittest” (the giants), and large compa-nies can now adapt by pursuing micromarkets once served onlyby local companies. Japanese giants Sony & Matsushita are be-coming vulnerable to a new species of predator combinations ofsophisticated chips and software in the same way IBM lost controlto Intel and Microsoft. All devices will evolve into specializedcomputer offspring by the addition of digital technology.

MANAGING “GLOBALITY”Economically, we are in the wake of a historic surge of

megabillion-dollar cross-breeding—mergers and acquisitions—the migration of business and assets into the hands of the strongestmanagement teams. There will be different ways to manage thatmating process going forward. The concept of co-CEOs (for ex-ample, as in Citigroup) is one way. There is also the idea of“globality”—the Anglo-Saxon model of shareholder value havingbeen determined the fittest, with increasing numbers of offspring.Yet globality is more of a process than a condition: It is a constantlyevolving framework of gaming, networking, and simultaneousand continuous sharing of information. Billionaire philanthropistGeorge Soros thinks the process needs to be managed—that thepresent global capital system can be sustained only by deliberateand persistent effort to correct and contain its deficiencies, not bynatural selection (laissez-faire). The challenge for many corporatemanagers is that manufacturing is evolving into a long chain ofprocesses that can travel around the world, while creating newoffspring processes at a rapid clip.

One holdover from the former ways of viewing the world is the“sunk-cost fallacy”—psychologists’ term for the human tendencyto weigh options according to previous investments rather thanfuture return, in part because saving face has been motivated moreby losses than by gains. In the move toward rationality, choicesshould depend more on future costs and benefits, i.e., survival and

The challenge formany corporatemanagers is thatmanufacturing isevolving into a longchain of processesthat can travel aroundthe world, whilecreating newoffspring processesat a rapid clip.

Arnold Brown


prosperity. This requires anticipation and mastery of the forces forchange and is leading to the use of evolution as a model formanaging change.

In the area of customer service, organizations are increasinglyusing advanced technology to determine their best customers,and these customers become even “fitter” because they are re-warded and provided the best service. Recent conventional wis-dom says that technological literacy will polarize the haves andhave-nots, but one’s standing as the fittest customer may actuallyplay a larger role in determining success. The 80–20 rule (80percent of your profit is generated by 20 percent of your clients) isnow capable of creating great advantage for the 20, and evendisadvantage for the 80.

The idea of time pacing, of deliberate recombination, procre-ation, and mutation at predetermined intervals, is likely to be-come an increasingly important management tool for allorganizations across divisions and functions. From a competitivepoint of view, it may be the only way to ensure offspring and,therefore, survival. From a human resources perspective, it maybe the only way to manage good talent in two-year intervals. Andfrom a profitability perspective, it may be the only way to diver-sify risk.

We are fast moving into the realm of parallel processing in allfacets of life—creating multiple planes layered on the same field.Everything is becoming a platform upon which expansion is thevalue added.

Foods and cosmetics are starting to also perform quasi-medical functions, with the introduction of cosmeceuticals andfoodaceuticals. Through genetic engineering, cows, sheep, andgoats are expected to also make drugs in their milk, and plantsare expected to produce biodegradable plastics. There is thelayering of gourmet onto natural foods and fortified foods.Healthy foods and beauty care double at boosting self-esteemand spirituality.

In 1998, supermarkets sold about $1.5 billion in home fur-nishings in the United States, along with offering fast foods,cafés, concierges, wine stewards, banks, and pet care. Malls arecombining butcher shops with designer clothing. Four on-lineretailers—CDNow, Cyberian Outpost, eToys, and Reel.com—have formed a network to cross-promote their products andservices. You can shop on-line around the clock, and companieslike Amazon will use book sales as a platform to sell more thanbooks and CDs—e.g., toys. Finally, any product sold anywherein the world becomes a platform for development of a marketanywhere else in the world.

The 80–20 rule (80percent of your profitis generated by 20percent of yourclients) is nowcapable of creatinggreat advantage forthe 20, and evendisadvantage forthe 80.



A MATTER OF TIMEPeople in the workforce are increasingly pressed for time. Men

as well as women now face more pressure to take on child-rearingand household duties while locked into rigid full-time jobs, espe-cially at a time of downsizing and the lengthening of work weeks.The time squeeze felt by parents juggling work and family isincreasingly being transferred onto their children’s lives, whichare becoming more structured. Free time is decreasing signifi-cantly in a child’s day, as every hour becomes an opportunity tolayer activity. In a postindustrial economy, with products that arelargely ephemeral, success is measured as much in terms of input(time) as output. U.S. workers feel pressed for time, and surpris-ingly, many find life at home more stressful by being multitaskedthan life on the job. Those who work more have 10 percent moresex, and many multiple job owners are Ph.D.s (over one in ten holdmore than one job). People in the United States have become lousyat leisure—they study it and throw money at it but don’t getsatisfaction from it. Downtime, like a blue-law Sunday, has be-come excruciatingly boring for a multitasked society. Those formsof leisure that are most like work—competitive sports, do-it-yourself projects, gardening, and hobbies—are flourishing. More-over, lifelong learning is moving to the house, the car, the commutertrain, and the church basement.

With time in short supply, the need to allow people to multitaskor to address their inability to multitask moves into the workplacewith “virtual” or corporate concierges, auto maintenance, finan-cial services, and manicures. Technologies that normally serve asbusiness tools—planners, E-mail, laptops, phones—now includepersonal services like appointment reminders, financial planning,and food ordering and delivery.

Because everything and everyone becomes a platform for addi-tional activity, benefits, or output, or leverage, every company andassociation has to revisualize the concept of value-added. Whetherto a good or a service, to a store or a profession, the continued stand-alone usefulness of the original platform may become less impor-tant as more and more gets layered onto every field of endeavor.

The multitasking trend is resulting in destruction of the wallsthat used to separate different businesses and activities. A power-ful driving force is e-commerce. Business on the Internet is allabout access, distribution, and marketing skill, not about separatebusinesses. So eBay, which offers upwards of 900,000 products, isnot in a business, it is just in business to sell whatever products itscustomers may want to buy or sell. Electronic commerce is alsomaking time know-how more important than knowledge andexperience of products or markets.

People in the UnitedStates have becomelousy at leisure—theystudy it and throwmoney at it but don’tget satisfaction fromit.

Arnold Brown


We are also seeing the end of lines of demarcation elsewhere:

• Cereal companies are increasingly involved in health care;• Pharmacies are becoming health food stores as well; and• Department stores and groceries, among others, are be-

coming banks.

FREE AGENCYThe phenomenon that has transformed professional sports in

the United States—free agency—now appears ready to transformbusiness as well. Free agency denotes a relationship in whichterms of employment and compensation are negotiated, a processgenerally controlled by the employee or his or her agent. Fueledlargely by the rapid development of technology and a growingshortage of skilled competent people—the “talent crisis”—freeagency is rapidly spreading. It is moving down from the top levelsof organizations to the middle (and even lower for tech people).

Another driving force is an awareness that talent is finite andthat it gravitates inexorably to where it is best rewarded, not justmomentarily. Everyone remembers how the railroads began todecline when they no longer attracted the best and brightestemployees. The eminent sociologist Nathan Glazer has pointedout that public education in the United States began to declinewhen the brightest and most capable women (who used to wantto be teachers) were presented with many more opportunities andstopped becoming teachers.

Just as power in the marketplace has shifted from producersand distributors to consumers, so power in the workplace isshifting from employers to employees. Although a severe eco-nomic downturn or recession could affect that power shift, andthere will be labor supply cycles with surpluses and shortages, thetalent crisis will still persist, and the spread of free agency will inall likelihood go on. This is made even more likely by a growingawareness of the importance of intellectual capital to organiza-tions and by attitudes now prevalent among young people. Twenty-somethings believe they can “write their own tickets” and areconfidently demanding sweetheart deals from eager employers,becoming in the process what some have called “gold-collar”workers. Millionaires are increasing at a rate of 15 percent a year(although a bear market could change that), and many of them arevery young.

Some other indicators follow:

❑ Average compensation is going up because there are morehigher-paying jobs than had been expected.

Twenty-somethingsbelieve they can“write their owntickets” and areconfidentlydemandingsweetheart deals fromeager employers,becoming in theprocess what somehave called “gold-collar” workers.



❑ More than one out of six people in the United States are nowself-employed, independent contractors, or temps—in otherwords, free agents.

❑ There has been a big increase in the number of workers withflexible work schedules—from 15.1 percent in 1991 to 27.6percent in 1997.

❑ Some employment agencies are becoming talent agencies,helping knowledge workers formulate and make demandson employers.

❑ More female executives are leaving the corporate world “tohave fun.”

❑ Eighty percent of CEO and top management jobs are nowbeing filled from outside, compared to 10 percent five yearsago.

Impermanence will increasingly describe employer-employeerelationships. Just as free-agent professional athletes are nowsignificantly less likely to have a strong affiliation with either theirteams or their communities, employees’ sense of affiliation will besimilarly weakened. Their first consideration will be how muchmore money or how much better a deal can be made elsewhere.The result will be, as in sports, a constant bidding up of salaries,benefits, and perks. There will be a continuing shift toward morewidespread employee participation in ownership of the enter-prise—a change that will profoundly alter the nature of business.The idea of the business as a sort of communal activity, withemployees as stakeholders/owners, will be more prevalent, lead-ing to a genuine people’s capitalism.

We are likely also to see agents becoming more important.Already, some employment agencies are becoming talent agen-cies. As they make better deals for clients, the demand for theirservices will grow.

The treatment accorded to gold-collar workers will createenvy and discord elsewhere in the organization. It is likely thatthis will exacerbate human resources management problems—and it will almost certainly accelerate the spread of the freeagent mindset.

COMPANY CULTUREIn order to attract employees, companies are finding that they

have to stand for something. Company culture is seen as a new formof currency to attract and keep technology workers. The annualFortune survey of the most admired companies highlighted thosewith strong group direction, getting people to buy into the visionand creating an environment that inspires action. Clearly “just”

The result will be, asin sports, a constantbidding up of salaries,benefits, and perks.

Arnold Brown


making a lot of money for stockholders doesn’t attract the best andbrightest of workers, even with stock options.

Stewardship, or the longer-term focus on community, the envi-ronment, and stakeholder groups, will continue to evolve andemerge as an important counterforce to unopposed capitalism.Chances are, soon after the turn of the twenty-first century, thismovement will once again pick up steam in the United States, butit will probably emerge with the most strength when the leadingedge of the baby boom begins to retire in 2015. At that point,capitalism will be in full flower globally (and fueling the retire-ment incomes of the boomers), and at the same time, the boomerswill start paying attention to the legacy they leave to the world.Although 15 years may seem like a long time, it is not. Given theshort-term pressures on bottom-line and stock performance, itwould take that long for a corporation, institution, or profession toslowly develop and solidify its image of stewardship in the eyesof the world. Single actions, even big ones, are seen as marketingploys. Only long, steady attention to stewardship places a com-pany or profession in good light with the public and regulators.

COMPETITIONRelentless competition forces businesses to maintain the high-

est possible levels of product quality and customer service, and itmakes them keep their prices low, in spite of their powerful urgesto do otherwise. It also demands of companies that they be morenimble—quicker to see and respond to competition. Even compa-nies well-known for alertness and agility, such as Motorola, maynow find that they are not quick enough.

Several factors are contributing to this new era of relentlesscompetition. First, there is the revolution in information technology,which has drastically reduced the cost of starting a business. Thismeans, of course, that a growing pack of hungry new competitors,circling like ravenous hyenas, will be quick to see and pounce onany weakness in the business-customer relationship and turn it totheir advantage—that is, to capture market share. It means alsothat existing businesses, for their own protection, will rangefarther to snatch customers away from other existing businesses.That will entail getting into new and often unexpected productand service lines. With the cost of information continuing to godown—at an accelerating rate—the entrance of new competitorsand the predatory behavior of already established firms will alsoaccelerate. So we see how the Internet, for example, is creating anew and intensely competitive environment for everything fromretailing to securities marketing.

Another key factor is the entrepreneurial boom. New business

Even companieswell-known foralertness and agility,such as Motorola,may now find thatthey are not quickenough.



start-ups in the United States are approaching 1 million a year,according to official statistics. In fact, the real number is muchhigher. The official statistics do not include the multitude of home-based enterprises cropping up everywhere, responding in largemeasure to such developments as the growing insecurity in em-ployment in large companies and the increasing desire on the partof individuals for freedom and control over more of their life. So,for example, new low-interest-rate lenders are eating into thebusiness of banks and credit-card companies.

A third factor is the demise of Marxism and the attendantweakening of the statist philosophy that has dominated Westernpolitics and economics for the last half-century. Adam Smith isbeing read again, and his concept of laissez-faire is now conven-tional wisdom. Increasingly, around the world, government isno longer seen as the tool of first resort; even President Clintonhas said that the era of big government is over. Wherever theheavy hand of the state had smothered entrepreneurship, fromEastern Europe to China, innovation and initiative are nowflourishing. Thus deregulation is creating competition in areasformerly dominated by government-sanctioned monopolies, suchas electric utilities.

Other factors contributing to the creation of a new marketplaceare:

❑ More sophisticated consumers. Today’s consumers have higherlevels of education, much more information about goodsand services available, and more skepticism. Survey re-search consistently shows that people are far less naïve indealing with advertising claims. So we see greater efforts toadd perceived value for customers, to provide somethingmore than just the product or service—as in the focus on“shoppertainment” in retailing. We also see the search fornew and, perhaps, more effective ways to reach consumersand capture their attention with advertising.

❑ Increased demand for choices. This is now seen as an inalien-able right, because sophisticated consumers understandthat the more choices they have, the greater their power inthe marketplace. Thus, the pressure is to create more com-petition in financial services by letting everyone get intoeveryone else’s business.

Almost all businesses today proclaim themselves to be “cus-tomer-centered.” The truth is that they are, if anything, “sale-centered.” Their focus is on making the sale, when competitionincreasingly demands that it be on what Professor Theodore

Adam Smith is beingread again, and hisconcept of laissez-faire is nowconventional wisdom.

Arnold Brown


Levitt of the Harvard Business School said many years ago: gettingand keeping a customer. To do this effectively, businesses willincreasingly have to see both their customers and their employeesas comarketers—and treat them accordingly.

Competition, as conservative economic theorists have longmaintained, is proving to be a marvelously effective regulator ofthe marketplace. It is also proving that any business that doesn’tkeep up with accelerating consumer expectations of cost, qualityand service, as well as changed consumer needs and wants, cankiss its market share goodbye.

In this era of relentless competition, the truth is that everyorganization can no longer know for certain from where itscompetition will come. The banks were caught by surprise a dozenyears ago when such unexpected competitors as GE Capital andFidelity Investments grabbed large chunks of their business. Nowthey are being caught by surprise again as department stores andgrocery stores invade their turf. Traditional forms of competitiveintelligence no longer suffice. Business will have to find moreappropriate tools.

The successful business enterprise of the twenty-first centurywill emphasize structure less and function more. Whatever struc-tural forms enterprises will take—and there will be more thanone—will be determined more by need than by tradition. In theend, business, as always, will be what it has to be in order to thrive.

SOME IMPLICATIONS FOR HUMAN RESOURCESNew times and new ways of looking at the organization

require that HR executives look anew at how to hire and managepeople. They can no longer be guided by, in Lincoln’s words, thedogmas of the past. Specifically, the approach HR must use toeffectively staff the new organizations will include:

❑ Evaluating people more on the basis of what they can learnrather than what they already know.

❑ Devising new forms of compensation that encourage andreward informed risk taking and entrepreneurial fervor.

❑ Creating a new social contract between employer andemployee that is based on integrity rather than no longeruseful concepts such as long-term loyalty.

❑ Redefining diversity so that it is based on intellect andculture rather than just gender and race.

❑ Finding better ways to detect aptitudes that will be increas-ingly necessary for the organization’s competitive edge:flexibility, comfort with change, innovation, honesty, andknowing how to add value to information.

Traditional forms ofcompetitiveintelligence no longersuffice.



❑ Searching out and removing those things in the organiza-tion—its structures, procedures, and culture—that are im-pediments to using effectively the aptitudes cited above.

❑ Keeping up with advances in learning about the humanorganism in order to make the organizational environmentmore suitable to and less in conflict with human biology.

In recent years, many HR functionaries have seen their jobs inincreasingly narrow parameters. That will not do in the future.The HR professional must expand his or her vision to be consistentwith our greatly expanding sense of what organizations can andought to be. �

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Transforming business structures to hyborgs