An alternative way to think about organisations and their archetypes depends on the way the core resources are allocated, i.e. internally or externally. There are five archetypes of organisations that can be identified if we classify them based on the resource consumption and utilisation pattern viewpoint.
This article is excerpted from Chapter 3 of Organisational Anatomy: A Manager's Guide to a Healthy Organization by Oleg Konovalov
An alternative way to think about organisations and their archetypes depends on the way the core resources are allocated, i.e. internally or externally. There are five archetypes of organisations that can be identified if we classify them based on the resource consumption and utilisation pattern viewpoint. These types are:
• Producers or producing organisations
• Knowledge-dependent organisations
• Location-dependent organisations
• Donor-dependent organisations
• State-affiliated organisations.
Producing organisations (Transformers)
We all love fast cars, chocolate and comfortable chairs, but we do not always realise the amount of effort that the producers of such nice things invest in their product design. Producers are a category of organisations that transform different materials into something tangible, attractive and useful. Any organisation where the core activity lies in the transformation of inbound materials can be classified as a producer. They may be carmakers, shipbuilders, winemakers, fish curers, builders, meat processors, pharmaceutical companies or in other words, anyone who transforms external resources and adds value to them, whether they will be turned into a ready-to-use product or semi-product.
Producing organisations depend on the quality of resources available, their internal expertise, and their internal and external ability to meet and satisfy customer demand. They are dependent on the quality of their supply chain members as their provision and quality are in turn reflected in the producer's final product quality. Imagine a fish processor, who demands a stable supply of fish that must be of a certain standard and within a certain price range. Otherwise, the processing organisation will not be able to produce the specified final product as their production costs will rise astronomically. In order to secure a stable supply of their core resource, the fish processor must establish strong and robust relations with fish suppliers, whether they are local fish farmers or fishermen, or fish suppliers from abroad. The fish processor must know exactly what the consumers of their products require and meet their expectations, thus establishing strong relations with the customers as well.
Another good example is an auto producer that produces excellent cars in the premium range. In order to secure a stable supply of top quality parts, materials and expertise, they become involved in a number of strategic alliances and joint ventures with the suppliers of key materials and resources. The level of component quality and expertise allows the production of modern cars that can withstand competition with their rivals from around the world. However, it is important to not only build a car and sell it, but to provide appropriate services and aftersales care which reflects the effort placed into the development and production of the vehicle. Brand perception is also significant. Jaguar, for instance, discovered that by sharing service personnel with Ford, it damaged the perception of its brand, meaning that the effort spent on its car design and construction in the value chain was affected.
Producing organisations are dependent on more than just the quality of inbound resources and their professional expertise in terms of adding value or reshaping the inbound materials, but also dependent on the market, their ability to provide appropriate sales and after-sales care. It is impossible to run a factory if the supply of the core material is not guaranteed and secured for times ahead. Therefore, companies or organisations which are involved in adding value must possess appropriate facilities as well as reliable, affordable and advanced equipment. Before building a start-up, funds must be invested in production with any return to be made at a future point. Depending on the declared level of quality and thence price, consumers expect an appropriate level of smart inputin cost management, conversion costs to optimise the balance between innovation and what is known to work, and sales and aftersales services, all of which must be consistent with local preferences, reflecting design, robustness, etc. Goods or services are expected to be unique to some extent, whether it is in the design, functionality, quality or just a response to a fashionable trend. Producers have to develop strong relations with all relevant industry actors to stay on top.
To stay abreast in contemporary trends and competition, producers must also invest in research and development (R&D) and track the latest technologies to fulfil the customer's demands. Failure to do so opens up the market to competitors that can manage this "arms race" in today's information age more successfully and can even mean that producers are excluded from the competition forever, because the recovery costs are too great. Managers working in a producing company thus face pressure from a relatively high number of formal and informal transactions, and the constant surveillance of different regulators. They need to have broad knowledge about many processes, rather than just one, as well as organisational and market-related professional knowledge.
Knowledge-dependent organisations (Brainboxes)
The second archetype of organisations can be seen in those entities that rely on internally generated knowledge. These can be termed as knowledge-dependent organisations. The list is long – banks, insurance companies, management consultants, universities, business schools, hospitals, accountants, clinics, law enforcement agencies, lawyers, schools, sport clubs, travel agents, estate agents, recruitment agencies and so on. We are not talking about knowledge-intense organisations (KIO) which can be of a different archetype and develop technologies; they can be based in any industry.
Knowledge-based organisations rely on their own expertise and external demand for them to produce intangible goods and services such as health, knowledge, comfort, expertise, and etc. For instance, a Vice-President of a large bank said that:
“We only care about our own expertise which allows us to make a better profit than the average bank, and feeling comfortable holding customers and outfighting competitors. Actually, we do not need anything from the outside. We bought an IT company a few years ago that serves all our current needs so we are practically independent.”
However, these organisations still need some externally generated resources, often high value items. For instance, hospitals need X-ray equipment or expensive tomography services; banks need sophisticated computer systems; universities need to fill their laboratories with appropriate equipment, and so on. Such equipment or services are purchased intermittently and the equipment has a supportive function in increasing the worth of the intangible organisation core.
Knowledge-dependent organisations have very different concerns compared to those working for the value-adding producer organisation. They are driven by the need to increase organisational expertise and attract more customers (or service users). In the bank scenario, money is being made using the expertise in financing. An accountant may not need much tangible equipment, but relies on his/her knowledge of how to report the accounting figures accurately. They must also be fully aware of all the latest regulatory changes. We choose a college, university or business school by looking at rankings based on the level of knowledge and expertise developed inside the entity responsible for the tables.
The primary concerns of the knowledge-based industry managers, therefore, are the continuous attraction of the best talents and how to use them to develop intangible resources and organisational capabilities to the highest possible level, to allow the organisation to survive and succeed. The managers also need to focus on how to sell their expertise and compete against similar organisations in the market. Of course, there are cases where a famous medical consultant performs a ground-breaking surgical operation. In such cases, there are no worries about customers. Similarly, certain universities that enjoy high ranking have candidates fighting their peers to get onto the admissions list. However, in the more "normal" scenario, attracting and retaining customers require effort. For instance, a Managing Director of an elite dental clinic commented that:
“In order to strengthen customer relations and attract new patients, the dental clinic runs a special programme offering free dental treatment for the kids of regular patients and runs regular children’s parties promoting dental care, like the popular “Dental Princess” parties. These allow the clinic to strengthen the relationship with existing patients and also recruit a number of new patients.”
Banks and insurance companies place their advertising posters widely in a city whereas on TV, sponsorship of media programmes and sports events is cleverly manipulated to strengthen brand recognition. They also offer differentiated service levels and packages to attract new customers. However, what happens in reality after the "signing on the line" is often completely different to the promotional material.
A knowledge-dependent organisation needs to support all those who face the external world where that transaction brings money or resources into the organisation since relations between knowledgedependent organisations and their customers are not as long-lasting as they claimed to be. For instance, people may be proud to be a graduate of a highly-ranked university, but in many cases no actual relations between the university and the former student continue after graduation, other than contacts asking for money, internship provision, etc. Who would remember that you have been a bank’s client for many years once you have closed an account? Exceptionally, there may be a residual quality mark or scar from the exchange, e.g. top business school graduate, famous management consultancy client, and so on, but largely these relationships are not strong or long-lasting, and can be expensive to develop and support. Organisations of this archetype go bankrupt because they do not understand their cost structures well.
Location-dependent organisations (Lighthouses)
The key asset for a hotel chain or supermarket chain is simple – location. There are many different organisations that are heavily dependent on their location - resorts, shops, coffee shops, snack bars, hairdressers, etc. Restaurants, however, are a special case as they rely on expertise in cooking, price and location - people will travel for decent food and an enjoyable evening, but not to dangerous back streets.
We all know that if a shop or a coffee place is as little as fifty meters away from a shopping or walking route, it will not receive good customer flow. A five-star hotel is unlikely to thrive in a depressed area or on the outskirts of a city because footfall from the hotel's target customer group is likely to be low. For these organisations, the location must be safe, pleasant, convenient, beautiful and even exotic in some cases for resorts, hotels and golf clubs, or very safe and convenient for shops and other services.
We often think about airlines, telecommunications companies or broadband providers as kinds of producers, but they are not. They are directly dependent on assigned areas in which they can conduct their business. Airlines serve particular destinations and telecommunications companies serve certain coverage areas. Their coverage area grows when the organisations grow bigger - for instance, an airline adding new routes into its portfolio.
What is the difference between retail chains? The location matters to the customers and for the retailer’s logistics. As in our last example, the customer is central for a limited time span. For instance, a Category Buyer from a supermarket chain said:
“Our job is to smile at those who are in front of us or walking in, but we do not have time for those who have already been served and have made payments.”
Are there dramatic differences for customers buying food at similar supermarkets? Possibly not in the amount of money spent, level of service and products - the key difference is location. If Tesco is located closer to my home, then I will choose Tesco. If Asda is, then I will choose Asda. When two or more retailers are located within the same area, we can observe the competition between them through local price benchmarking, through discounts or other matching offers, especially if fuel is sold. With a huge array of similar products, competition is about the level of service and “competition of discounts”. The winner is the organisation that can offer something more and better, but still within the optimal location for customers.
Location-dependent organisations will have very strong relations with those who secure the appropriate plot of land or building for them, or even bring this function in house to manage secrecy around future purchases and prevent land prices from increasing once a supermarket's intention is known. Engineering and communication infrastructure providers and financial institutions support them. They may also control large land banks, or use their brands as a franchise to manage their income without high fixed cost investment. They have a long list of potential suppliers and will not invest in these relationships as it is very easy to change or replace the supplier, or remove a brand from a shelf, unless the product offered is unique or the payment terms are extremely favourable to the retailer.
Whilst they may appear to offer the same quality of service as producers, location-dependent organisations often omit the aftersales service. They can become vulnerable to incidents that affect the status of the location and thence the relative attractiveness of the location.
Donor-dependent organisations (Co-dependents)
Another group of organisations are completely dependent on donor groups’ or other sponsors’ willingness to support them. They include charities, Non-Governmental Organisations (NGOs), different voluntary funds, and Faith Based Organisations (FBOs). These organisations attract donors by using emotional attachment or human willingness to sacrifice something towards a good goal or purpose to ensure their survival. They need to fulfil an administrative budget and meet the requirements of their mission statements, such as charitable aims or other altruistic purposes. To do this, they need to maximise resources through donations or other resource contributions, such as professional skills (Medecins sans Frontiers) or volunteering. These relations require investment to remain strong and long-lasting in order to continue resource attraction on a long-term basis. For instance, a priest-monk suggested:
“I know absolutely well from my experience (and my colleagues can confirm this) that we think it is better that we receive a small, but regular donation for years in the future as the outcome is more than a single large donation.”
However, the willingness and ability to donate are related to moral and ethical views, and the overall level of disposable income in a particular country. We have seen cases where the less well-off are more generous donors than wealthier inhabitants. People living in developed countries are usually more prepared to donate compared to people who are living in developing countries or emerging economies where the level of donation and the market for donor dependent organisations as fund raisers, as opposed to resource distributors, is relatively small. Donor-dependent organisations are often highly skilled at after-sales service to solicit repeat donations from previous sources ("warm donors"), which are critical to their survival.
State-affiliated organisations (Big brother)
State-affiliated organisations include government departments, agencies, para-stated entities, etc. They often have some secure funding that they need to spend before the next budget period, often as a result of government budget and accounting practices, leading to abrupt changes in decision-making strategies around the financial year end. Since they are the arms of the state, they are not subject to the same levels of accountability as the other organisational archetypes as charities are often heavily regulated to prevent fraud or money laundering. They enjoy a privileged position with almost unlimited access to resources. There is low or very limited responsibility for their performance and often no sanctions if the performance is poor. This lack of accountability also gives rise to the low transparency of management’s decision-making and high inertia as they are limited in their willingness to change other than through revolutionary approaches. The high public attention also translates into political agendas regarding staffing levels, meaning efficiencies may be lost. It sounds very easy holding a very powerful position. However, state-affiliated organisations are bound by a budget with a lot of uncertainties involved. For instance, natural disasters may wipe millions away within minutes, whereas the restoration of damages may take years.
It is impossible to find an ideal city or town on the Earth where each state-affiliated organisation has only minor problems. The management of such organisations is an extreme management task. We must also consider that a state is an organisation itself, huge and very complicated.
This article is excerpted from Chapter 3 of Organisational Anatomy: A Manager's Guide to a Healthy Organization by Oleg KonovalovBLOG COMMENTS POWERED BY DISQUS