Advances in technology have the capacity to bring great transformation. The Harvard Business Review points out that in 2004, when technological changes prompted Indian telecom company Bharti Airtel to outsource so many operations that only the company’s small core remained, many wondered whether this pared-down structure represented the future of corporate organization.
Research by our Executive Director Saikat Chaudhuri confirms that outsourcing of innovation and R&D activities continues to be a popular strategy. He emphasized the importance of these relationships at the Wharton Global Forum earlier this year, saying, “Outsourcing is shifting from the peripheral to core activities of the firm.” With outsourcing growing and core capabilities contracting, is hierarchy becoming a thing of the past? The short answer is no.
Mack Institute Co-director George Day and his colleagues at the American Marketing Association asked in 2008 what would happen to the traditional corporate organization by 2015. At the time the study was undertaken, a vision of the future filled with lean, open, networked companies rather than closed, hierarchical giants looked very possible. Reflecting on the today’s corporate marketing landscape in his article for the Harvard Business Review, Day affirms, “The hierarchy is still in place.” The caveat is, today’s hierarchy is more open.
Day defines hierarchy: “I’m talking about a self-contained structure of multiple skills and responsibilities organized within clear lines of authority, one that allows the organization to do a lot of marketing tasks on its own”
When analyzing why hierarchical organizations have retained relevance, Day mentions several critical factors that have bolstered the traditional structure. To begin with, limiting outsourcing protects a company’s knowledge from exposure to outside partners, helping it sustain the competitive edge. Furthermore, it’s difficult to find ideal partners — Day’s analysis cites the disappointment rate in alliances and joint ventures as 50%.
But the number one reason hierarchical structures have survived is that rather than disintegrating in the face of technology’s possibilities (i.e. being outsourced into oblivion), large companies have instead employed technology to make their structures more flexible, more effective. If the speakers from our spring conference hadn’t made it clear enough, now you have it from Day’s perspective in marketing — big firms can adapt, too.