2.3.2 Purpose and identity
All organisations have a purpose and an identity, and there are stereotypical views of how these differ. Commercial organisations are frequently held up by some as models of efficiency and effectiveness and by others as uncaring and unstable. Public sector organisations may be depicted as hidebound and unwilling to change, or as havens of altruism. Voluntary organisations can be considered amateur – or innovative and more responsive. In truth, there is often as much variation between organisations within each sector as there is between sectors. There are also sectors within sectors. Financial services seem to have an ethos quite different from that of the manufacturing industry. Housing associations are different from counselling organisations.
Paton (1991) suggests that differences between sectors arise from the logic on which they are based:
- Commercial organisations are based on a logic of profit, which implies notions of competitive positioning, measurable targets, the division of labour, optimisation, performance-related remuneration and so on.
- Public sector organisations are based on a logic of accountability, which rests on concepts of service, impartiality, strict hierarchical control, universality and the like.
- The social economy or third sector is based on a logic of commitment, in which people ‘do what needs to be done’ and are strongly influenced by shared values.
This traditional view of sectoral differences is illustrated in Figure 5. However, the distinctions between public and private sectors have become blurred. Even organisations that regard themselves as clearly part of the public or voluntary sector will experience a pull towards other parts of the organisational economy. Organisations working in the field of residential care for the elderly, for example, have much in common regardless of whether they are commercial or non-profit providers. Local governments in the UK and elsewhere have lost some of their service provision responsibilities and are frequently purchasers of services from a wide range of commercial and non-profit organisations. In other words, many public bodies have been reconstituted and their goals redefined in more commercial terms. In parallel, many commercial organisations are recognising a range of concerns broader than delivering a profit to shareholders. Environmental and ethical concerns have risen up the business agenda. The whole organisational landscape is becoming more diverse and more complex. This blurring of boundaries is illustrated in Figure 6.
Organisational purposes are achieved by means of the organisation adopting a strategic orientation to the outside world. Organisations may adopt competitive or collaborative strategies, or a mixture of the two. Recently there has been greater stress on collaborative working for many organisations, which is linked to the concept of the network organisation. This type of organisation has taken the process of de-differentiation to its ultimate conclusion. Instead of differentiated functional departments bound together in one organisation, it consists of a partnership of several organisations. Hatch (1997) describes the principles underpinning this approach, and the example that follows illustrates how it has been adopted by Benetton, an Italian clothing company.
Networks seem most likely to form when organisations face rapid technological change, shortened product life cycles and fragmented specialised markets. In a network, necessary assets are distributed among several network partners in such a way that it is not a single organisation that produces products or services, but rather the network at large that is the producer or provider.
A network can be the result of massive outsourcing or collaboration between small firms whose scale of operations would not allow them to compete in international markets by themselves. Outsourcing means that many of the activities of a once complex organisation are moved outside the organisation’s boundary. Sometimes the suppliers will be spin-off units, with the original organisation retaining only those activities for which it has a particular competence. All other necessary activities are purchased from other organisations. When all the task activities are outsourced, you have a virtual organisation.
The Benetton organisation
Benetton is rethinking its global network of suppliers and distributors and defying conventional wisdom in the process. Its efforts may prove to be a model for other companies with far-flung operations.
In the 1980s, while the provocative magazine and billboard advertisements of Italian clothing company Benetton caught the consumer’s eye, the company’s tremendous growth, outstanding financial performance and innovative strategies were captivating the press, scholars and practitioners around the world. For many years, it was the archetypal example of the network organization – that is, an organization based on outsourcing, subcontracting and, more generally, on relationships developed between a large company and several small producers and distributors, or both.
Several factors contributed – and, to some extent, continue to contribute – to Benetton’s success. First is its innovative operations-management techniques, such as delayed dyeing. Benetton postpones garment dyeing for as long as possible so that decisions about colours can reflect market trends better (the tinto-in-capo strategy). Second is its network organization for manufacturing. A network of subcontractors (mainly small and midsize enterprises, many of which are owned, completely or partly, by former or current Benetton employees) supply Benetton’s factories. That structure has lowered Benetton’s manufacturing and labour costs, has reduced its risk (which shifts to its suppliers) and has given it unbeatable flexibility. Third is the network organization for distribution: Benetton sells and distributes its products through agents, each responsible for developing a given market area. Benetton does not own the stores; its agents set up a contract relationship (a licensing agreement similar to a franchise) with the owners, who then sell Benetton products. Benetton supports the retailers with services such as merchandising.
But Benetton is not resting on its laurels. It is not waiting for a financial crisis or a performance slump to transform itself. True, overall performance has remained excellent … Benetton's managers believe, however, that if the Treviso-based company is to remain competitive in the new global arena, it must have first-hand contact with the end customer, respond in real time to market changes and find new ways to ensure direct control over the supply chain.
To that end, the company is retaining its network structure but is changing the nature of the network. Whereas its main competitors have stuck with outsourcing, Benetton is gambling on vertical integration and centralization. It is betting – perhaps counter-intuitively – that it can remain flexible and achieve a high level of performance with a more complex network architecture in which it directly oversees key business processes throughout the supply chain. Benetton also is diversifying into sports – another move not entirely in keeping with conventional wisdom, which suggests companies should focus on their core businesses. The company’s choice shows, however, that an enterprise can adapt its knowledge and competencies to a different, though closely related, industry. Finally, although it has embraced globalization, Benetton believes that sustainable value creation cannot be built merely by exploiting cost differentials between nations. It is committed to maintaining key functions at its base in industrialized northeastern Italy; even in its overseas locations, it has established production practices based on its Italian model. The aim is to achieve overseas profits not just from cheap labour, but from sound systems.
Many organisations work collaboratively without becoming network or virtual organisations. Partnership is in vogue within and between all sectors, making life even more complex for managers. One major problem that emerges from collaborative strategies can be a loss of autonomy for individual organisations. Agreements have to be reached with other organisations about the goals and methods to pursue. These negotiations can add to the complexity of the management task. There can also be tensions about organisational identity if smaller and less powerful organisations feel swamped by larger participants in their network.
Stop and reflect
Locate your organisation on Figure 5.
Identify any movements or overlaps between sector boundaries that have affected your organisation.
You may have found that your organisation sits clearly in one of the sectors, or, more likely, you may have found that it sits in some kind of intermediate position, operating for commercial purposes, but anxious to satisfy other agendas, such as accountability to a wider public. For example, there has been an increase in ethical investment companies. These have to operate according to the logic of profit (or cease to exist), but they also have pressures arising from their accountability for their investment decisions. Or your organisation may be in the social care sector: keen to provide an excellent service to people in your locality, but also having to operate on commercial principles when managing costs or face the loss of this service to a more cost-effective provider.