When thinking about the “governance” of business organizations, the focus tends to fall on questions of responsibility and regulatory compliance, and the broader issue of how an organization and its constituent members should be controlled, monitored, and made more accountable. In this paper, we take recent developments in the car industry – specifically the emergence of “self-driving” cars – to show how this concept and discourse of governance is disconnected from the business needs and realities of high growth companies today.
In an age of hyper-competitive global markets, firms need to focus on the business task of putting in place organizational structures and management processes that facilitate value creation through continued and sustained disruptive innovation. Firms that are most effective in this task will be best placed to succeed. The paper takes the current disruption of the car industry to illustrate how identifying the processes and practices that deliver the best opportunities for innovation should take center stage. A “re-framing” of contemporary debates on governance around these issues can then be made.
We suggest that the companies best placed to succeed in a highly fluid business environment characterized by constant disruption will be those companies that are able to organize-for-innovation. That is to say, they are able to implement structures, processes and procedures that enable them to constantly adapt and transform their business operations. Understanding these structures, processes and procedures therefore becomes an important step in developing a new frame for thinking about the shifting meaning of governance in a contemporary context.
In order to successfully organize-for-innovation, the next generation firm needs to build flat, open, and inclusive relationships amongst multiple stakeholders and strategic partners. The paper highlights three aspects of this phenomenon, as it is currently playing out in the automotive industry.
i. A Design-Orientation. A key task of the company of the future will be to gather disparate technologies and integrate them into a coherent product or service that delivers a value proposition that has relevancy for consumers. This is the challenge facing incumbents and newcomers alike, looking to develop an autonomous car.
In this respect, the future of the car industry - or any industry confronting fast and profound technological disruption - will not be determined by developments in the technology - ie, who develops the “best” engine, chassis, design etc, and the associated IP rights - but rather by the capacity of firms to meet the design challenge associated with imagining, gathering and then assembling the products or services of the future.
ii. Visionary Leadership & “Flat” Culture. Hard choices regarding which particular approach is going to be adopted to meet this design challenge will need to be made and this requires some degree of organizational hierarchy. The key thought here, however, is that the process of making design decisions needs to be internally transparent and guided by a commitment to identifying the “best idea”, rather than allowing other considerations (eg formal or informal hierarchies) to intrude on decision-making. In this aspect at least, a “flat” corporate culture is therefore essential. The main task of business leaders is to reiterate constantly the vision of the company in order to ensure that decision-making is not distorted by these other considerations.
iii. Inclusive Partnering & an Open Ecosystem. Research and Development (R&D) - particularly, the current emphasis on hardware development within an internal department specifically tasked to do research - will become less significant in this design-oriented model. Moreover, the focus of R&D will need to shift from hardware to software and the development of a core operating system that will coordinate the modular architecture of the intelligent car.
These trends oblige car manufacturers to engage in new style partnerships with a broader range of partners than has previously been the case. We characterize the most effective partnerships as open and inclusive. Car companies need to build an open and fluid eco-system, in which strategic partners are allowed to maintain their own identity and work together with manufacturers. The vertical integration that previously characterized relationships in the automotive section will be replaced by more dynamic forms of partnering - in a variety of forms – that will be central to the disruptive companies of the future.
Erik Vermeulen is Professor of Business and Financial Law at Tilburg University. Masato Hisatake is Fellow at the Research Institute of Economy, Trade and Industry (RIETI). Mark Fenwick is Associate Professor of Law at Kyushu University.