(Adapted from Understanding organizations…finally, Chapter 20)
Perhaps the most significant advance in organization design in recent times has been the shift from firm borders, exemplified in the strategies of vertical integration and diversification, to the opening of these borders, with a variety of arrangements, here labelled networking out, contracting to outsource, partnering to venture jointly, establishing a platform for others, affiliating for a common purpose, and associating for common concerns. Most of these have been receiving considerable attention in the literature, but separately. Considering them together, under the label organizations outward bound, can open the perspectives of both researchers and managers, to thinking worldly, beyond global.
The term “outward bound” was originally used to describe ships departing their home port for foreign destinations. Later, it came to be associated with an NGO that provides youth with adventures in nature. This article proposes a third use, for what many organizations are now doing.
“Bound” has two quite opposite meanings. One is going somewhere else, in a sense, opening up. The other is closing in: “being restricted to or by a place or situation” (Oxford English Dictionary). As we shall discuss, traditionally organizations have closed themselves in, by maintaining rather firm boundaries with the outside world. Typically, activities were inside or outside; there was little middle ground. Then came a rather sharp transition: relatively quickly, many organizations went outward bound, by opening up their borders with a variety of interesting and sometimes creative arrangements. Here we describe six of them, labelled networking out, contracting to outsource, partnering to venture jointly, establishing a platform for others, affiliating for common purpose, and associating for common concerns. Each of these, but especially all of them together, have been changing the face of organizing, and organizations.[i]
We begin by considering where organizations used to be, namely inwardly bounded, with sharply delineated borders, even while pursuing strategies they called diversification. Then we describe the six arrangements that have taken them outward bound.
[i] Sources consulted for this article, listed together here because many do not fit neatly into one or other of these categories, include Lars Groth, Future Organizational Design; Filipe M. Santos and Kathleen M. Eisenhardt, “Organizational Boundaries and Theories of Organization,” Organization Science 16, no. 5 (September–October 2005); Göran Ahrne and Nils Brunsson, “Organizations and Meta-organizations,” Scandinavian Journal of Management 21, no. 4 (2005): 429–449.491–508; Henry Chesbrough, “Business Model Innovation: It’s Not Just About Technology Anymore,” Strategy & Leadership 35, no. 6 (November 2007): 12–17; M.D.L. Seidel and K. J. Stewart, “An Initial Description of the C-form,” Research in the Sociology of Organiza- tions 33 (November 2011): 37–72; Phanish Puranam, Oliver Alexy, and Markus Reitzig, “What’s ‘New’ about New Forms of Organizing?,” Academy of Management Review 39, no. 2 (2014): 162–180; Annabelle Gawer and Michael Cusumano, “Business Platforms,” in International Encyclopedia of the Social & Behavioral Sciences, 2nd ed. (Elsevier, 2015); Michael G., Jacobides, Carmelo Cennamo, and Annabelle Gawer, “Towards a Theory of Ecosystems,” Strategic Management Journal 39, no. 8 (May 2018): 2255–2276; and Andrew Shipilov and Annabelle Gawer, “Integrating Research on Interorganizational Networks and Ecosystems,” Academy of Management Annals 14 no. 1 (January 2020): 92–121.
2 BioNTech chief executive Ugur Sahin and his wife, Oezlem Tuereci. Ludwig Burger and Patricia Weiss, “Behind Pfizer’s Vaccine, an Understated Husband-and-Wife ‘Dream Team,’” Reuters, November 9, 2020.
3 Hence Benoît Demil and Xavier Lecocq refer to “bazaar governance—based on a specific legal contract: the open licence” is “Neither Market nor Hierarchy nor Network: The Emergence of Bazaar Governance,” Organization Studies 27, no. 10 (October 2006): 1447.
Bounded by Vertical Integration and Diversification
For much of the last century, the most prominent strategies of large corporations have been vertical integration and diversification, pursued within their traditional boundaries.
As shown in the Figure 1, vertical integration extended their chain of operations, bringing within their borders suppliers at one end (“upstream”) and customers at the other (“downstream”). An automobile company might have bought a supplier of its batteries, or created its own dealerships. Henry Ford pursued this strategy to an extreme: “To complete the vertical integration of his empire, he purchased a railroad, acquired control of 16 coal mines and about 700,000 … acres of timberland, built a sawmill, acquired a fleet of Great Lakes freighters to bring ore from his Lake Superior mines, and even bought a glassworks.” (Troacă and Bodislav, 2012).
When a company diversified, to offer additional products or services, it bought companies in other businesses, also to incorporate them within its own borders, or else developed new businesses internally. Honda, for example, exploited its expertise in motors to produce a variety of other vehicles—outboard motors, lawnmowers, ATVs, and so on.
Whether vertically integrated or diversified, the boundaries of these organizations tended to remain firm, with the new activities reporting through the established hierarchy. How this has changed.
Networking Outward
Networking is hardly new. Organizations have always done so to facilitate communication, externally as well as internally (both shown in Figure 2). What has changed in recent times, thanks to the new social media, is the reach of networking externally.Now, connecting with associates across the world can sometimes be easier than connecting with colleagues next door. At the end of their shift, a team of software engineers in Boston might transfer the work where they left off (“asynchronically”) to another team in Bangalore, within or outside their own company, which continues the work until, at the end of their shift, they transfer it back—all with remarkable seamlessness.
Networking need not be based on any formal structural arrangement; sometimes it just happens. In contrast, the other five arrangements of outward bound are somewhat formally structured, two making use of contracts, another of rules, the last two of designated membership.
Contracting to Outsource
An organization’s boundaries begin to blur when it engages in outsourcing—the opposite of vertically integrating—as some activities previously done in-house are contracted to outside organizations, or individuals (shown in Figure 3).Many companies these days, for example, engage specialized consulting firms to search for new executives.The suppliers of these services are not in the organization, but not quite out of it either: they may, for example, supply it on a regular basis, under contract. In one factory I visited, the workers in blue were employees of the company whereas those in green, doing the similar work, received their paycheques from another company. The boundaries in this factory were evident only in the colors of the work clothes!
Some outsourcing has been around for a long time: organizations have always bought some services on contract—legal expertise, for example. And contractors in the construction industry have long used an extensive form of outsourcing. As their name indicates, they secure the contract to construct a building, and then subcontracect the activities—electrical, plumbing, scaffolding, and so on—to a host of specialized companies. Not so different is a film company that decides what film to make and then engages independent scriptwriters, actors, editors, and others, to make it.
The recent wave of outsourcing has come partly in reaction to the Henry Ford-style excesses of veridical integration. Now, however, the pendulum can sometimes swing the other way. It is one thing for a retailer to contract out the maintenance of its stores, quite another to let go of, say, the sourcing of its merchandise, as Amazon seems to be doing. And while extensive contracting may work in the construction and film businesses, it can hollow out other ones that require significance substance inside.
Key here is to figure out what are the core competenciesof the organization (Prahalad and Hamel, 1990)—those it cannot let go without ceasing to be a viable enterprise. In those construction companies, for example, this would seem to be the securing of contracts and the choice of subcontractors. Sometimes, however, an organization can be surprised to discover a core competence after it has outsourced it. Air Canada developed a highly successful points program called Aeroplan, then spun it into a separate division, later sold it, and finally—perhaps realizing it was core—bought it back in.
Outsourcing has, of course, hardly been restricted to business. Some years ago, our own university put many of its administrative staff on contract, which may have weakened its culture. And outsourcing has long been prominent in government, if not by that name. With so many public services to provide, governments have always made considerable use of outside suppliers. In fact, many NGOs came into being to supply certain public services on contract, say, programs to feed the poor. But the outsourcing of public services can likewise be carried to excess, as perhaps in those American states that have outsourced prison services to private companies.
Partnering to Venture Jointly
Here the borders blur further, as independent organizations partner to design, develop, and/or market particular products and services (as shown in Figure 4). They venture jointly, the implication being that the relationship is temporary.
The Smart Car was an interesting example of this in the automobile industry, resulting from a joint venture of Mercedes and Swatch, the watch company. And the vaccine breakthrough in the COVID pandemic came from a joint venture of Pfizer with the husband and wife team of a small company.[i] Likewise, watch the credits of a feature film today and you will likely see a whole list of “producers”.
The label joint venture may be used mainly in business, but the label PPP (public-private partnership) is commonly used for such ventures across the sectors. In fact, many that go by this label are actually public-plural partnerships—that is, governments partnering with community associations in the plural sector (Mintzberg, 2015). And not uncommon are public-plural-private partnerships (which could be called PPPPs), as when local government, environmental NGOs, and private companies combine their efforts to reduce pollution in their city.
Offering a Platform for Others
The opposite of outsourcing is a kind of insourcing: an organization sets itself up as a platform, available for use by outsiders (shown in Figure 5). This is how we have used Wikipedia, an archetypical example of the platform organization, likewise ChatGPT, much as software designers have used Open-source Software (OSS). To use the description in Wikipedia itself, “the copyright holder grants users the right to use, study, change, and distribute the software and a source code to anyone and for any purpose.”
Hence, we can use Wikipedia freely, yet we are not even members of it (it has no members). We are thus not inside Wikipedia, nor are we outside of it: we can go in whenever we wish, and not only to peruse: we can change entries..
When I first wrote this, I went on Wikipedia to look up “platform organization”. This appeared: “The page Platform organization does not exist. You can ask for it to be created”— so long as we respect the rules. (Facebook, another platform organization, found out what can happen when the rules are inadequate.) Imagine if we could do this with our supermarket: “I didn’t find tiger shrimp on your site, so I added it to the list, under seafood. I will place my order tomorrow.”
Wikipedia has no owner—it’s not private property, nor public property, but, in a sense, common property, available to us all. It funds itself by soliciting donations from its users. Facebook, on the other hand, is the private property of its shareholders, as are many other platform organizations. Yet its influence on our social discourse has caused it to be treated like common property, Twitter/X even more so, as Elon Musk has discovered.
How to define the presence and absence of the boundaries of an organization like Wikipedia? As outlined in what Seidel and Stewart (2011) have called the “new community architecture”, or C-form, these plural sector platforms have “(1) fluid, informal peripheral boundaries of membership; (2) significant incorporation of voluntary labor; (3) information-based product output; and (4) significantly open sharing of knowledge.”
On the more conventionally commercial side, some years ago American Airlines joint ventured with IBM to create the SABRE system, a platform that has enabled “tens of thousands of travel agents and others… [to be] perfectly coordinated in…reservations for the flights, hotels and car rentals that are listed there.” Similar are the food markets where farmers have traditionally rented space to sell their produce, and stock markets where investors or their brokers go to buy and sell stocks to each other.[i] More recently, and most prominently, the Apple iPhone was created as a platform on which all kinds of organizations offer their apps.
Just as a character in a Molière play discovered that he was speaking prose, so too are we discovering now that we have been using platforms for many years. Consider those physicians who have used hospitals as places to practice their profession.
Affiliating for Common Function
Affiliating can be described as inserving (in contrast to outsourcing): a group of organizations, or individuals, get together to provide themselves with a common function (as depicted in Figure 6), as, for example, when businesses in a city—hotels, restaurants, theatres, together with the local chamber of commerce—affiliate to promote local tourism.
Affiliating is similar to creating a platform, except that here the users do this for themselves. For example, some hospitals collaborate to negotiate with suppliers for better prices. They affiliate, but they don’t integrate, since each member maintains its independence. Figure 6 for this arrangement depicts it in the form of a donut, with the substance in the ring, not at the center.
At the center of the affiliation, however, may be a small staff to hold the arrangement together, typically headed by someone from a member organization, appointed for a limited term of office. Thus, while a global accounting firm might be incorporated as a single organization, with a significant central staff, a small national accounting firm might affiliate with others in different countries to provide international services to its customers.
Associating for Common Concerns
Affiliating and Associating may appear to be similar, but the distinction is worth making. Associating is looser than contracting, venturing, platforming, and even affiliating, but is still an arrangement outward bound. Here the organizations associate for common concerns, rather than affiliating for a specific function.Figure 7 depicts the associates sitting around a table, where they meet periodically to discuss interests they share in common. In diplomacy, for example, the G7 and G20 are associations, whereas NATO is an affiliation, with a military function.
Popular terms, such as consortium, chamber, alliance, and assembly, describe these associations, although these terms are sometimes used for affiliations as well. Do the trade associations in industries, or the chambers of commerce in cities, exist to discuss common concerns, or to lobby for common causes? Often, both. And when large competitors meet together, is this a simple association—”Just to communicate”—or does it turn out to be an affiliation, in the form of a cartel?
Our Thinking Outward Bound
We talk considerably about thinking globally. But this, too, is a kind of silo, i.e., it views the world geographically. In order to see the world holistically, worldly may be a better concept. The Oxford Dictionary defines it as “experienced in life, sophisticated, practical.” Quite the combination of terms, but perhaps exactly what is needed.
To be worldly means to get beyond our conventional borders, personal as well as institutional, into the world of others, so that we can understand our own world more profoundly. Becoming more worldly can be the ultimate manifestation of going outward bound—beyond our bordered organizations and our siloed selves.
[1] Sources consulted for this article, listed together here because many do not fit neatly into one or other of these categories, include Lars Groth, Future Organizational Design; Filipe M. Santos and Kathleen M. Eisenhardt, “Organizational Boundaries and Theories of Organization,” Organization Science 16, no. 5 (September–October 2005); Göran Ahrne and Nils Brunsson, “Organizations and Meta-organizations,” Scandinavian Journal of Management 21, no. 4 (2005): 429–449.491–508; Henry Chesbrough, “Business Model Innovation: It’s Not Just About Technology Anymore,” Strategy & Leadership 35, no. 6 (November 2007): 12–17; M.D.L. Seidel and K. J. Stewart, “An Initial Description of the C-form,” Research in the Sociology of Organiza- tions 33 (November 2011): 37–72; Phanish Puranam, Oliver Alexy, and Markus Reitzig, “What’s ‘New’ about New Forms of Organizing?,” Academy of Management Review 39, no. 2 (2014): 162–180; Annabelle Gawer and Michael Cusumano, “Business Platforms,” in International Encyclopedia of the Social & Behavioral Sciences, 2nd ed. (Elsevier, 2015); Michael G., Jacobides, Carmelo Cennamo, and Annabelle Gawer, “Towards a Theory of Ecosystems,” Strategic Management Journal 39, no. 8 (May 2018): 2255–2276; and Andrew Shipilov and Annabelle Gawer, “Integrating Research on Interorganizational Networks and Ecosystems,” Academy of Management Annals 14 no. 1 (January 2020): 92–121.
2 BioNTech chief executive Ugur Sahin and his wife, Oezlem Tuereci. Ludwig Burger and Patricia Weiss, “Behind Pfizer’s Vaccine, an Understated Husband-and-Wife ‘Dream Team,’” Reuters, November 9, 2020.
3 Hence Benoît Demil and Xavier Lecocq refer to “bazaar governance—based on a specific legal contract: the open licence” is “Neither Market nor Hierarchy nor Network: The Emergence of Bazaar Governance,” Organization Studies 27, no. 10 (October 2006): 1447.
Reference: Victor-Adrian Troacă and Dumitru-Alexandru Bodislav, “Outsourcing. The Concept,” Theoretical and Applied Economics 19, no. 6 (2012): 51–58.
C. K. Prahalad and Gary Hamel, “The Core Competence of the Corporation,” Harvard Business Review (May–June 1990): 79–91.
H. Mintzberg, “Time for the Plural Sector”, Stanford Social Innovation Review (Summer 2015): 28-33
M.D.L. Seidel and K. J. Stewart, “An Initial Description of the C-form,” Research in the Sociology of Organizations 33 (November 2011): 37–7.