The Key Promises of Organizational Unbundling: Embracing Market-Based Organizational Models in the Product-Centric Era
What if every unit in your organization functioned autonomously? Embrace organizational unbundling and tap into the heart of innovation, resilience, and talent engagement.
In an era of rapid change and transformation, the traditional, hierarchical structures of organizations are continually being challenged.
The monolithic, hierarchical models that have historically dominated the corporate world are increasingly incompatible with the demands of the digital age. As we venture into this new landscape, one emerging paradigm that offers an alternative is that of “organizational unbundling”. This model, borrowing concepts, both from digital marketplaces and entrepreneurial ecosystems, suggests a radical reimagining of how companies are structured and how they operate. At Boundaryless we created the 3EO Framework to help organizations get inspiration from the pioneers of organizational unbundling and market-based models.
This article delves into the concept of organizational unbundling, a transformative approach that reframes an organization as a collection of autonomous nodes, an approach that is mirrored in Boundaryless’ 3EO Framework. In the Boundaryless approach, such nodes should be micro-enterprises focused on producing a peculiar product or service. These entrepreneurial teams should be supported by shared internal platforms that provide all units with common enabling services, for example in finance, IT, HR, and more…depending on the context, and by shared policies and entities that look into allocating capital for venture incubation.
In some approaches to organizational unbundling the concept of a micro-enterprises is substituted or integrated by that of a stream-aligned team (a team that focuses “on a single, impactful stream of work” such as a “single product or service, a single set of features, a single user journey, or a single user persona”) often removing or integrating the key idea of a self-sustaining profit and loss balance, in favor of other “forcing functions” dictated by the measurement of different KPIs which can be innovation related, productivity related or more contextual. We explored this topic more in our recent essay: Adopting a Product-Centric operating model at Scale – Boundaryless.
In this post, we will explore the promises that such a model offers – especially in the version praised by Boundaryless in the 3EO Framework – including heightened agility, and increased innovation potential. When featuring separate P&L, unbundling approach, essentially creates an internal market within the organization. This approach is a response to the reduction of transaction costs and to the blurring boundaries between the internal and external environments of companies, as a consequence of it.
The key promises of organizational unbundling
In the following paragraphs, we’ll explore in detail several key drivers of value that are involved in the choice of adopting an unbundled, market-based organizational model.
Reducing or Preventing Organizational Debt
Organizational debt, an accumulation of decisions and agreements focused on short-term outcomes that “just make things work”, can limit an organization’s flexibility and responsiveness to change by reducing optionality: the capability of the organization to branch into new directions. Furthermore, it can affect the speed and cost of responding to market changes.
Organizational debt makes organizations brittle, by creating long chains of thin promises that, when broken, can create disastrous impacts.
The market-based, unbundled organizational model offers concrete mechanisms to mitigate this issue.
In a truly unbundled organization, the company is divided into autonomous micro-enterprises or product units that are able to deliver a well-defined set of products or services and can maintain their own profit and loss statement. Each of these units has the authority to make decisions, allowing them to respond quickly and effectively to changes in their specific product’s environment. This decentralization of decision-making mitigates organizational debt by reducing the relevance of broad, company-wide decisions that often get outdated and don’t align with the needs of individual products. It also decreases the risk of creating inflexible structures or processes that aren’t explicitly beneficial or relevant to each product or service: each unit is autonomous, and accountable, to deliver a certain output to the customer (both internal or external) and should be free to source supply and make agreements freely both inside and outside of the organization, with the aim of reducing its reliance on a fixed set of internal players.
The unbundled model also prevents organizational debt in growing businesses, as it encourages autonomy and product-centricity from the get-go.
In addition, the shared service platforms that are typical in the unbundled model (units that provide enabling services across all micro-enterprises) minimize the need for duplicative services and processes across the organization. This not only streamlines operations but also prevents the build-up of redundant or conflicting structures and processes, a common source of organizational debt. In a way, these models provide the market orientation of divisional structures, but avoid the duplication of enabling services that are extracted from the product units and – in the most ambitious implementation – even put in direct competition with external providers.
Reducing Organizational Brittleness
Organizational unbundling significantly reduces the reliance on critical units that, in traditional organizations, often become single points of failure, thus contributing to organizational brittleness.
In traditional structures, certain departments or teams often hold a disproportionate amount of responsibility or control over key processes, which can lead to a precarious situation where the entire organization’s performance hinges on them.
Unbundling, instead, fosters a more distributed and resilient structure. It disperses critical functions across multiple self-managed units or ‘micro-enterprises’. By sharing responsibilities and competencies across a broader range of them, the organization as a whole becomes more resilient and adaptable.
Organizational unbundling though, not only reduces the reliance on specific units that hold control over key processes but also encourages diversification in the strategies to source the key resources that underpin the execution of each Micro-Enterprise business process. Micro-enterprises can source their key resources in multiple ways: from within the organization, from external partners, or by developing them in-house. By doing so, these units reduce their dependency on a single source and increase their resilience to potential disruptions: if one unit faces an issue, others with similar capabilities can step in, ensuring continuity of operations.
Reducing Time to Market and Distance to the Customer
The unbundled, market-based organizational model provides a strategic approach to significantly reduce time to market and minimize the distance from the customer. This is primarily achieved through the decentralization of decision-making and through accountability to customers which are direct consequences of the creation of product-centric micro-enterprises.
In a well-implemented unbundled model, each micro-enterprise operates autonomously and needs to have direct responsibility and control over its own decision-making, to ensure it can achieve positive profit and loss, or – more generally – respond to the alternative forcing functions that regulate its functioning.
Such autonomy enables rapid response to market changes and swift implementation of decisions. Without the need to navigate through layers of organizational hierarchy for approvals, the time from product development to market introduction is significantly reduced.
Moreover, the distribution of profit and loss statements across the organization and – more generally – the implementation of mechanisms that tie a team’s performance to their outcomes also contribute to drastically reducing the distance to the customer. Each autonomous unit is centered around a specific product or service, allowing it to understand and cater to the needs of its specific customer base intimately. The customer becomes the focal point of each unit: even support functions are focused on their “internal customers” (the micro-enterprises) and could even be nudged to seek monetization of services even outside the organization – when possible and when P&L has a central stage in the approach to unbundling.
This direct connection between organizational units and their customers, enabled by the unbundled model, ensures that customer feedback and needs are quickly integrated into the product development process, enhancing customer satisfaction and relationships. This mechanism is exemplified by Haier’s Rendanheyi model, where employees are said to be “paid by the customer” encouraging a strong focus on swift and successful product delivery.
In some contexts, potential concerns can emerge about brand coherence in an environment where everyone can interact with customers. Centralizing some of the Go-To-Market capabilities inside shared service platforms can also help ensure that such activities are consistent and don’t disorient the customer.
Enhancing Upselling and Offering Coherence
In our experience at Boundaryless, ensuring brand and portfolio coherence and increased upselling capabilities can also be obtained without top-down control.
In large, multi-product organizations aiming at a modular offering, it’s vital that the modular organizational structure resonates with a modular product taxonomy, which mirrors the communication patterns and thought domains within the organization.
Adopting shared visual portfolios and product taxonomies on top of an unbundled structure can significantly amplify opportunities for upselling and provide a more complete and coherent offering while at the same time keeping the benefit of a multi-product, entrepreneurial context.
Such visualizations serve as a common language, fostering mutual understanding and enabling effective communication across different units and teams. Visualizations of product portfolios help teams understand their position in the larger scheme and relate their work to the broader organizational goals and offerings.
Besides helping organizations navigate the complexity of their product offerings, such approaches also make it easier for organizations to strategically identify and seize portfolio-level opportunities and help ensure that the organization remains coherent from a product and offering perspective, even as decision-making becomes increasingly decentralized.
We’ve explained how we achieve this on an org-level in a recent post called Why Building a Visual Product Portfolio and creating shared innovation practices is essential for Adaptive Organizations
Both of these approaches (strong product taxonomies, and centralization of GTM functions) need to be considered with care to avoid falling back into bureaucratic structures: it’s easy to create opportunities for scapegoating (“I couldn’t reach my objectives because the GTM team didn’t help”, “I couldn’t develop my new product idea cause it wouldn’t have fit into the taxonomy”).
These are exactly the things we’re aiming to address with an unbundled organizational model.
In our recent piece The Trilemma of Organizational Unbundling we explored the inherent tradeoffs that exist by optimizing coherence – at the unavoidable expense of autonomy and adaptability. Check it out if you’ve concerns that adopting an unbundled model could create stress on the brand or portfolio.
Leveraging Economies of Scale through Shared Services Platforms
Organizational unbundling can help organizations to tap into economies of scale through the Shared Services Platform (SSP) pattern. By providing centralized, shared services, organizations can achieve cost efficiencies and consistency across the board. However, it’s important to note that this pattern must be carefully implemented to avoid the common pitfalls of a functional organization such as lack of autonomy, slow decision-making, and tactical or political optimizations.
In an unbundled organization, shared services are typically organized as platforms that provide essential functions such as IT, HR, or finance, or sometimes more specialized capabilities in go-to-market, engineering, and other aspects of production such as manufacturing.
These platforms operate on a “pull” rather than a “push” basis that is typical of the functional organization: instead of imposing their services on the product, micro-entrepreneurial units, the SSPs offer services that the units can choose to use or not. This approach gives the units the autonomy to choose the best services for their specific needs while still benefiting from the economies of scale that come from the optimization of shared services. Because the platforms have to compete for the business of the units, they have an incentive to continually improve their offerings. In some cases, they’re asked to be entrepreneurial, seeking further customers and justifying value for money.
Based on the context, depending on how market performance is depending on the strategic relevance of the shared service platform services, organizations can decide to be more prescriptive regarding the obligation for MEs to source their support services internally.
In certain cases, shared service platforms provide key services that make a strong advantage for the organization and require massive investments. Imagine a platform providing advanced manufacturing capabilities that are differentiating in the market. In other cases, shared platforms need to be optimized for captive environments (catering services only internally) for compliance-related constraints. This is a common pattern in the financial or healthcare industries. In other cases, for example, when the need for brand coherence is strong, the organization is often more assertive in ensuring that MEs only rely on internal platforms.
Constraining MEs to source services from captive providers can be risky. On one hand, very busy internal platforms can easily become a bottleneck: in this case, a good idea is to slightly oversize the platforms to avoid this pitfall. On the other hand, organizations that adopt such approaches, need to observe their platforms constantly, to avoid overspending and bureaucratization.
Catalyzing Future Business-Oriented Innovation
Organizational unbundling opens up new avenues for business-oriented innovations, employing four major patterns:
- Investor Roles and VAM Contracts: One of the fundamental roles in an unbundled organization is that of the “investor”. Such a role is normally delegated to several, field-specific agents or groups. Such groups often represent multiple points of view to avoid wrong investment decisions. For example, in a recent project that Boundaryless has been working on, such an investment platform was structured to include the existing Micro-Enterprises to ensure that new investments are synergistic with the existing offering. Such actors seed new ventures through investment contracts, or Value-Adjusted-Mechanisms (VAM). These contracts regulate capital allocation, and other needs that the new unit requires to operate up to a critical phase of validation, typically problem-solution fit. After such a phase, follow-up investment contracts are used up to operationalize the offering, or spinning off.
- Micro-Enterprise Co-Investments: In an unbundled organization, micro-enterprises are also given the autonomy to manage their own resources, including cash flow and allowances, much like having their own “bank account”. Such autonomy extends to the ability to co-invest with other enterprises without seeking permission from leadership. This pattern encourages collaboration and resource pooling, further stimulating innovation (check out these interviews with John Bunch and Rachel Murch where we explored Zappos implementation).
- Mutliple-Unit Agreements: These agreements – called Ecosystem Micro-Community (EMC) Contracts in Haier’s Rendanheyi and in the 3EO model, represent agreements between different units of the organization aimed at creating higher value scenarios for customers (or higher outcomes in general). By collaboratively combining their resources and capabilities, units can deliver more comprehensive solutions, enhance customer value, and capture emergent customer needs. Such innovations can be later institutionalized into more stable units.
- Direct Connection with Users: Unbundled organizations foster a direct connection of product units with users, acting as a powerful mechanism for “sensing the market“. This direct link allows organizations to gain real-time feedback and insights from their users.
Employee engagement, attraction & retention
The unbundled organizational model offers several advantages related to employee engagement, attraction, and retention, which are particularly relevant in a world increasingly predisposed towards independence and autonomy.
The model’s emphasis on autonomy and decentralization is conducive to fostering a spirit of entrepreneurship within the organization. This aligns well with the growing trend towards independence in the job market, where tools and resources now enable individuals and small teams to thrive outside large corporations. By offering an environment that supports entrepreneurial initiatives, unbundled organizations can attract talent seeking the freedom to innovate and create, without losing the support and resources of a larger organization.
Moreover, the unbundled model allows employees to express plural and creative ways to embody the organizational purpose. The org-level purpose can indeed be fractally unbundled into smaller, independent but still strategic, sub-purposes at multiple levels. Each sub-purpose can be autonomously owned and pursued by a separate organizational unit.
As an example, in many 3EO implementations, we see a few key players playing a key role in the first level of capital investment and venture coordination, pursuing certain key strategic choices. Micro-Enterprises then, take responsibility for each initiative at the product/service level and use capital accordingly. Individuals, and former employees, may then join those Micro-Enterprises that best resonate with and support their own personal purpose.
This reflects the evolution of modern work cultures that value diverse interests and goals. Employees in these organizations can contribute to various goals that align with their personal interests and motivations. This feature is especially attractive to prospective employees seeking more diverse and fulfilling roles and helps retain those who seek new opportunities due to a sense of purpose misalignment.
Another strength of the unbundled model is its transparency and information access. This transparency extends to unit performance, service catalogs, P&L statements, and other key metrics, enabling employees to understand and appreciate their contribution to the organization’s success and be inspired and learn from each other. Additionally, visualizing product portfolios and shared strategic understanding enhance employee engagement. Through visualization, disagreements can be clarified, and a common perception of the domain can be established, giving employees the sense of building on top of a strong basis. Such transparency fosters trust and engagement among employees, which can be crucial for both attracting new talent and retaining current employees
Further benefits include greater possibilities for learning and personal development, and the possibility of greater upsides thanks to the entrepreneurial role that is available for employees that seek to have more skin in the game.
In the context of the ongoing “Great Resignation,” where a significant number of employees are leaving their jobs in search of better opportunities and work conditions, the unbundled model’s benefits could be particularly appealing. By promoting autonomy, and interests at stake, providing a sense of ownership, and supporting diverse interests, unbundled organizations offer a work environment that meets the changing expectations and demands of today’s workforce.
In conclusion, for executives considering the transition toward an unbundled organizational model, it’s crucial to recognize the journey as potentially complex and challenging, yet immensely rewarding.
Such a transition necessitates a thorough rethinking of traditional structures and practices, demanding significant effort, resources, and patience. However, the potential returns can be transformative. By creating a more agile, transparent, and entrepreneurial environment, the unbundled model can drive innovation, foster engagement, and attract talent. Moreover, it offers a powerful means to address organizational debt and entrenched risk, enabling the organization to become more resilient and adaptable in the face of unpredictable markets.
The unbundled model, therefore, represents not merely a new organizational structure, but a strategic response to the evolving business and societal landscape, positioning organizations to thrive amid complexity and change.
In the coming weeks, we’ll publish more content on the topic, and we’ll explain better how and what types of organizations should ponder unbundling as a strategic option. These may include organizations that have grown affected by bureaucratization, organizations where the sense of ownership and autonomy is being hampered, organizations that have gone through several Merger and Acquisitions and now deal with scarcely coherent portfolios, organizations that are seeking to create deep partnerships (eg: joint ventures, creation of common holdings…), organizations that want to grow to avoid the pitfalls of growing for the sake of growth, and generally organizations that want to reduce risk and increase antifragility in the face of shifting markets.
Later on, we will unveil the key techniques that are involved and how the process involved rather represent a set of strategic focuses: architecting, unbundling, and rebundling.
Stay tuned for more and reach out if you want to explore how your large, or growing, organization could tap into these patterns to ensure broader resilience and thrive in the current – often uncoherent – market dynamics.
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