Of whales and sucker-fish
As large corporations work closer and closer with outsider partners, they are beginning to look increasingly like social networks

THE ONCE popular perception of the corporation as a stand-alone, self-sufficient entity is as out-of-date as prohibition and snake-oil. In the traditional organisational structure, units were either inside and close, or outside and distant. As David Nadler, founder of the Mercer Delta consultancy, puts it: they were either densely connected with other parts of the organisation, or they were not connected at all. Transactions with outsiders were at arm's length.

Today, companies have a host of different types of relationship with other organisations. They subcontract not just their advertising (as they have done for over a century) but in many cases also their production, as Nike and Dell have done so effectively. They have joint ventures with other firms and strategic alliances galore, sometimes to put their toe in new waters, sometimes merely to share risks.

The relationship with outsiders that probably receives the most attention is that of outsourcing, and especially its close cousin, offshoring. More and more, companies hand over to others the running of their back-office services-the management of their accounts and their IT systems, for example. This work is often carried out in places like India and China, where the costs are a mere fraction of what they would be in Europe or North America. Some fear that most rich nations' jobs are slowly leaking in this way to the developing world.

Almost as controversially, firms are outsourcing customer-facing operations, such as call centres, and functions integral to their future existence, such as R&D. Much of the development of Apple's iPod was done by small engineering firms outside Apple, while big pharmaceutical firms are nowadays using university research laboratories almost as their own in-house facilities. For some universities this has become a significant source of income.

The limits to outsourcing have not yet been reached. One of the newer areas is human resources. In November 2005, DuPont outsourced its HR services (such as workforce deployment, labour relations and performance management) to a specialist supplier called Convergys Corporation. The $1.1 billion contract, which is for 13 years, covers 60,000 DuPont employees and 100,000 pensioners in 70 countries.

Others have effectively outsourced their supply-chain management-the co-ordination of the movement of all the inputs required for their products or services. As McKinsey, a consulting firm, puts it, organisations such as FedEx, DHL and UPS have "gone from providing services to companies to actually becoming a core operating function of those companies." In some cases, that has taken their interdependence to surprising lengths. For example, when a Toshiba laptop is sent back to the manufacturer for repair, it goes into a UPS box and is sent to the courier firm's hub in Louisville, Kentucky. There, it is taken to a vast warehouse near the airport where it is mended before being returned by UPS to its owner.

But the repair shop where it is mended is not part of Toshiba; it is owned by UPS, which has a contract not just to deliver the goods, but also to repair them and to deal with customers during the transaction. When laptop owners call to seek help for their broken machines, they are not talking to a Toshiba call centre but to a UPS employee.

All the big courier firms are developing this sort of service more extensively. UPS itself already provides a supply-chain service to many small and medium-size companies that cannot afford to provide one themselves. Martin Christopher, director for the Centre for Logistics and Supply Chain Management at Britain's Cranfield School of Management, says that in future it will be supply chains that compete with each other, not individual companies.

The most interesting point about this new sort of organisation is not that traditional firms have whittled themselves down to a hard core of capabilities; it is that they have taken on a new type of job-the management of all the different external relationships that they have set up. They may not "do" as many things for themselves as they used to, but they still have to manage the people that they have contracted to do those things for them.

Jobs in the extreme
This restructuring of the corporate world has been accompanied by a change in the demographics of the corporate population. Increasingly, firms are either very large or quite small. There has been a hollowing out of the middle.

The market capitalisation of the 150 biggest corporations-the WalMarts, BPs and Microsofts of this world-has nearly tripled over the past decade, while the market cap of the next biggest 1,850 companies has shrunk by 10% over the same period. The average number of employees at these top 150 firms is now over 120,000, some 25% more than a decade ago.

The advantages of scale for these giants are constantly being balanced by the growing complexity of their operations. The inter-dependency of the corporate world is increasingly like that between whales and sucker fish, a mutual support system of entities of very different sizes.

This new structure does not seem to have made the corporate manager's job any easier. America's National Bureau of Economic Research reckons that the percentage of college-educated men in the United States who are working more than 50 hours a week rose from 22% in 1980 to over 30% in 2001.

An article in the December 2006 issue of the Harvard Business Review describes the growth of a phenomenon called "extreme jobs". A survey by the authors, Sylvia Ann Hewlett and Carolyn Buck Luce, found that 45% of high-earning managers in large multinational corporations have extreme jobs today. These are jobs that demand more than 60 hours work a week, large amounts of travel, unpredictable work-flows, round-the-clock availability and heavy responsibility. They reckon that 10% of these managers work more than 80 hours a week.

There are several reasons for this increase. The squeezing out of layers of middle management in the almost continuous process of cost-cutting by large organisations over the past five years has reduced the number of top corporate jobs. Catalyst, a research firm based in New York, has calculated that the number of corporate officer positions in Fortune 500 companies fell by 368 between 1995 and 2005. Yet the revenues and the number of employees of these "whales" increased significantly over the same period.

At the same time, globalisation has increased the need for corporate officers to travel. And in recent years, the real price of long-distance travel, like the proverbial little black dress, has been continually falling. It has also compelled executives to be available outside normal working hours in their time zone, whilst advances in communications technology have made the middle-of-the-night international conference call both cheap and easy.

Moreover, the many loose associations that corporations now have with outside parties demand a different treatment to that meted out to their own inside employees. "Partners" and those to whom work is outsourced cannot be commanded to do things in the same way that companies can command their own in-house troops. The new name of the game is "co-operation and persuasion". In short, partners have to be cajoled to change their mind or their way of doing things. And that, above all, takes time.

Ms Hewlett suggests that extreme workers, for the most part, choose to work as they do. The new world of "whales" and "sucker fish" does not of itself force it upon them. One reason cited by the authors' high-earning managers for carrying on with a lifestyle which, more than half of them admit, ruins their relationships with their children and their sex life, is that it "gives this adrenalin rush-like a drug, it's addictive."

But also in a world where the winner takes all, it is at least financially worth it. The winners, the ones who get the very top jobs, are rewarded these days disproportionately well. A phenomenon well documented in Hollywood, and in sports such as golf and soccer, has now spread to the corporate world. One consequence of this is that so much is expected of top CEOs (because so much is given to them) that they can scarcely do anything other than disappoint. It is no surprise that the turnover of CEOs has increased dramatically in recent years.

Social networking
In this new inter-dependent world, where a manager's job has more to do with persuading outsiders to perform as promised than with ordering insiders to perform as desired, communications are crucial. The teams of loosely connected individuals from a number of organisations who come together for particular tasks-be it building a new commercial jet or repairing laptops-have something in common with the online communities being formed (mostly by young people) on web sites such as MySpace and Facebook. They want to share information among a group of individuals with a common interest.

Companies, by and large, have been slow to acknowledge this similarity. Barry Libert, a consultant and a blogger who advises organisations on creating online communities, says that this is because such communities empower the broad swathe of employees, and not the leader or the enterprise. He says that leaders need to get over this fear of emasculation, because this new sort of organisation-the loosely-linked collection of online communities-is, in fact, more productive than the old structure.

The networks of individuals formed through greater co-operation between their employers inevitably provides more opportunity for skilled workers to move from one organisation to another. In the past, this happened not infrequently between organisations that traditionally worked closely together, advertising agencies and corporate marketing departments, for example, or auditors and companies' accounts departments. Movements of the latter kind were a notorious feature of the unhealthy relationship between Enron and its long-serving auditor, Arthur Andersen, two organisations that no longer exist.

Today, such movements are far more widespread. Individuals increasingly pledge their allegiance to their skills rather than to the organisation that employs those skills. Young people expect to work for many more organisations in their lifetime than their parents did. This, in turn, means that organisations need to recruit and train a lot more people than they used to do. Sophisticated software programmes and online talent management systems are being developed that enable companies to recruit suitable people far more efficiently than they did in the past.

For instance, BMW reckons that the use of the web and clever data-processing systems provided by Taleo, a leader in the field, have helped cut the training time for its new recruits from 12 months to five. Similarly, the Dow chemical company reduced its search and advertising expenses by over 30% when it introduced an online "jobs board" and a standardised job-application process.

This movement of skilled labour is being accelerated also by the development of "communities" of job seekers who meet on sites such as Jobster. Jobster claims that 15% of the Fortune 100 companies (including Starbucks, Google and Boston Scientific) use its site to find employees from all over the world.

In 1999, only 60% of the world's top 500 companies had a corporate careers website. Now almost all of them do. A person in search of a job today can sit down in front of an online PC and in one evening send out hundreds of applications electronically. Honeywell, the electronic controls maker, has a computerised database of around one million people who have applied to it for jobs. Very few of them have ended up actually working for the company, but should Honeywell require a particular set of skills for a new task it can consult this database and find someone appropriate. It then has to persuade them to leave their current employer, assuming they are not (as is highly unlikely) still unemployed. But it may well be successful given the number of employees today who are on an almost permanent state of alert for new jobs.

This is a reversal of the previous job market where companies dangled advertisements in the hope of catching a suitable candidate or two. Now, they first identify suitable candidates and then set out to catch them. It means that more and more members of the new-style teams drawn from across organisations have, at one time or another in the not-too-distant past, worked together in the same team or for the same employer. It is almost as if the sucker fish in the new corporate world were little bits of whale that have floated off. At least it adds an extra layer of intimacy to the evolving relationships among organisations and their employees.