Fractal Organization

A recent BCG article “The Organization of the Future Is Fractal” has a clear description of what John Seely Brown expresses as
“we’ve moved from the age of enlightenment to the age of entanglement where sense-making aided by imagination is now more critical than ever.”

Scale isn’t dead. But it’s critical to find the right balance between scale and fractal principles
—and to do it before your competitors do.

Over the past 50 years or more, as the global economy became more integrated, CEOs have built their organizations to exploit scale as a source of competitive advantage.
They have built massive workforces, large factories and other capital assets, and continent-spanning supply chains. They have constructed gleaming central headquarters, where they retain all the important decision rights and exert tight control through a rigidly hierarchical and complex matrix management system. They have established data management systems to support top-down decision making through a two-way flow of information. And they have created contractual agreements to control every transaction.

The fractal end of the continuum, based on the same five dimensions of organization design:

  • Roles, Responsibilities, and Reporting Relationships. Fractal companies are less focused on hierarchy and more focused on maximizing interactions, links, connections, and conversations across hierarchical boxes—including employees, customers, and external partners.
  • Structure of Value-Creating Assets. Fractal companies design their delivery models around a network of dynamic, continuously evolving capabilities—their own and those belonging to their partners. These capabilities can be deployed quickly at local and micromarket levels and to target new value pools.
  • Distribution of Decision Rights. Fractal companies are decentralized and distribute significant power to customer-facing teams at the periphery.
  • Flow and Management of Information. Fractal companies democratize data (to the extent possible) with a real-time, transparent, multidirectional flow across boxes and organizational boundaries.
  • Management and Control of Transactions. Fractal companies build digital trust to facilitate an environment of sharing and to grow online transactions in an increasingly digital business environment.

“Obstacles are those frightful things you see when you take your eyes of your goal”

Henry Ford

The Fractal Design Principles

From Efficient “Boxes” to Interactive “Links.” 
The fractal company is in a sense antihierarchical and structures all roles and responsibilities in fluid and flexible ways to maximize the number of interactions and “links” across boundaries—which drives more “out of the box” ideas and allows teams to form and act on them at speed.
From Fixed Assets to Flexible Capabilities. 
The winning formula is not cost efficiency but the fractal levers of speed and local innovation in offering customized solutions, delivered by this capability network of “microassets.”
From Central Control to Peripheral Power. 
Factal companies build their organizational design to promote faster decision making. They do this by redistributing the power to make decisions—and allocating resources—to customer-facing leaders stationed far from the center.
From Two-Way Data to a Multidirectional Flow. 
The fractal company relies on what one business leader described as the “democratization of data”: the real-time, transparent, multidirectional flow of data and information inside and outside the company. This transparency becomes even more critical as the pressure of regulatory compliance, which can vary across countries, grows. Accordingly, companies must design their digital infrastructures—specifically their information management systems—to achieve this data democratization. In doing so, they must also overcome the pervasive “keep data confidential” mindset common to most scale-driven hierarchical companies.
From Contractual Agreements to Digital Trust. 
The two parties involved in a given transaction might never meet physically, after all; there is also a growing business imperative to share information as opposed to keeping it confidential. These developments can lead to an inherent mistrust, which in turn can lead to fluid corporate and customer relationships unless the issue is actively addressed. In a 2021 survey by the BCG Henderson Institute, trust was found to be “a proximate factor—albeit not necessarily the root cause—in the failure of 57 of the 110 unsuccessful ecosystems” studied.

To lead an organization designed for fractal advantage, every leader—at the center and at the periphery—has to be able to “not just play the game well” (in other words, execute the company’s strategy) but also “be able to improve the game they play (in other words, innovate at speed based on new market opportunities and changing customer needs) by harnessing capabilities from across the firm.” As such, they must be what we call “multifocal,” and therefore quite different from the majority of leaders in scale-driven companies, who focus primarily on (and are rewarded for) efficient execution.

Similar ideas do appear in my blog, like e.g
Design, Agency and Pragmatic Imagination and
Enlightement or Entanglement?

One response to “Fractal Organization”

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: