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Companies struggling to cope with discontinuous change by decentralizing, empowering teams, and becoming "lean and mean" are finding it increasingly difficult to coordinate the behavior of empowered units. As their operating units try to make and sell products ever more rapidly to keep up with changing markets, aligning all efforts with a common strategic intent becomes ever more difficult.
The traditional management system for ensuring coherent corporate behavior--command and control--is stressed even further if the business context itself is a moving target. But how should a corporation best be coherently managed when know-how is evolving in widely scattered locations and important, interrelated decisions are being made everywhere in the organization?
A few visionary leaders have realized that in order for their corporations to adequately meet the challenges of discontinuity --to quickly sense and respond to constant unpredictable change--they must adopt a new form of governance and institutionalize new norms of adaptive behavior.
Long-term strategic plans used to be the vehicle that provided a corporate context for decision making. In large corporations, central staffs used to be responsible for coordinating the formulation, planning, and execution of corporate strategic intent. But discontinuous change has made long-term plans incredible and large staffs ineffective. That's why both have been--or are in the process of being--eliminated at many companies.
Gone too are the days when large corporations could be confident of their ability to create synergy. Synergy requires a coherency of purpose and a degree of coordination that few companies can master nowadays.
Forgoing attempts to create synergy, many corporations are instead governing by portfolio management, which requires little operational coordination. For example, Asea Brown Boveri (ABB), General Electric, Abbott Laboratories, and Motorola have had outstanding success by managing as holding companies.
Design vs. Plan. All corporations--even those operating as holding companies--need a framework that ranks strategic options and sets boundaries for behavior. Strategic thinking--the analysis and selection of choices for resource allocation--is more essential than ever. But instead of expressing the result as a plan, it will have to become the basis of a business design for sensing and responding to unpredictable change. This design will incorporate the major business processes--including ad hoc activities. It will also contain processes that are dedicated to making the organization learn how to...