Shifting Power: From Tight to Loose

As one of the world’s largest pharmaceutical firms, Pharmaco (not its real name) is a true poster child for the recent sea change in the drug industry. New technologies for developing innovative drugs have shown such breathtaking potential that they seem the stuff of science fiction. In particular, the deciphering of the human genome has unraveled the mysteries of human life and radically increased our understanding of disease. At the same time, the new technologies have moved drug discovery from a process of randomly mixing chemicals in a tube to one of combining disparate processes such as genetic modification.

In this new environment, most of the innovation in pharmaceuticals has come from small new firms. As a result, many Big Pharma companies have shifted their R&D efforts toward identifying, evaluating, and buying promising molecules from those smaller firms. Witness the relationship of Pfizer and BioNTech in the development of Covid-19 vaccines based on mRNA technology.

In accordance with industry trends, Pharmaco had started to loosen up its organizational structure. It had also gone through two mergers in a row. As a result, administrative systems were not fully in place, and the executive level was more involved with structural and legal issues—and with jockeying for position in the emerging power structure—than with the core business of drug development. One new strategic cornerstone was in place, though: in the absence of internal breakthroughs, Pharmaco was looking outside for new innovations by using specially designated teams.

For these teams, the new strategy, combined with a loosening organizational structure, meant a lot of room to do things their own way. But it also implied a great responsibility to keep creating value. One specific team, Team Fox, had a particularly challenging task: to buy and develop a class of drugs—anti-inflammatories—that Pharmaco had no patents or experience in. This goal was reflected in the team name, inspired by Archilochus’s parable about the hedgehog and the fox. As the story goes, the hedgehog needs to know only one thing, while the fox needs to know many things. The idea, one member explained, was that “this team needed to do it all.”

Just a few years earlier, the team would have received an explicit and exclusive mandate from the executive level to complete its task. The process would have been rigid and tightly controlled through bureaucratic procedures, but the team would have been assured of management support and consistent attention. For a few reasons, however, Team Fox’s members would have to operate differently from the internally focused teams that had dominated Pharmaco until now.

First, with the executive level taking a hands-off approach, Team Fox would have to build a case for pouring resources into an expensive and risky project and then pitch it to management in competition with other projects. That’s quite different from starting out with the resources and mandate already secured. Second, with many projects competing for staffing and a limited pool of researchers, Team Fox’s leaders would have to convince line managers to assign scarce talent to their team. In the following chapters we will return to Team Fox and how it overcame these challenges. But the point we want to make here is that to accomplish its mission, Team Fox had to work and communicate across boundaries in ways teams at Pharmaco had not done in the past.

The story of Team Fox, as we will see later in this book, is not an isolated incident. While all teams are distinct in what they do, they’re all facing the same exponentially changing world. Loosening organizational structures, driven by innovation-based competition, means that teams have gained more autonomy to do their work. But with increased autonomy comes increased responsibility. Teams have to convince the executive level that what they are doing is worth doing, and that their work lines up with the organization’s overall strategy or represents a new strategic direction toward success. This task, in turn, has become even more challenging because of changes in the structure of knowledge.

Information Dispersion: Islands of Knowledge

The nature of competition today means that, to survive, firms must command leading-edge information. The challenge is compounded by recent changes in the nature of knowledge. The knowledge structures on which businesses depend have always been flat—a collection of islands rather than a mountain. But important changes have emerged in them. Driven by the same competitive dynamics that have led to shifts in organizational structures, the collection of knowledge islands is expanding and transforming rapidly—now consisting of many more islands of many more different kinds and growing rapidly. In fact, to a great extent, these changes have had a role in accelerating the need for the adaptive, loose structures that we just described.

Three major changes have affected knowledge structures. First, scientific and technical knowledge that’s critical for success in innovation-driven environments is becoming much more complex and advanced, and much more dispersed. Technical data is increasing so quickly that the speed and scope of change is rendering existing knowledge obsolete much faster than even in recent years. Second, there is a growing need to keep track of rapidly changing markets, as industry boundaries are evolving constantly. And third, there’s a need to capture real-time knowledge about competitors who are also racing ahead. Finally, in a garage somewhere, there is almost certainly a startup taking aim at the established business model.

Consider the first change. The dependence on increasingly advanced—and fast-evolving—scientific and technical knowledge has driven value-creating activity in organizations to become ever more specialized. This shift is reflected in the growing number of people with doctoral degrees not only in engineering-heavy industries, such as biotechnology and computing, but also in service industries, such as banking and insurance. To stay on top of their respective fields, these experts need to spend a lot of time staying abreast of new knowledge in their specialties and socializing with their peers.

As knowledge specialization has increased, so has the dispersion of knowledge—in both the organizational and the geographic senses. Partly this is a direct effect of specialization: there is only so much room for breadth in the knowledge repository of one organization or one organizational unit. It is also an effect of changes in industry structure. For example, in the wake of the molecular biology revolution, knowledge seen as key in modern drug development was suddenly found outside the established pharmaceutical firms, such as in biotech startups scattered around university campuses in Oxford, Silicon Valley, and Boston.

That brings us to the second major change in knowledge structures—and the mirror image of more complex yet more dispersed technical knowledge: a fast-moving marketplace with sophisticated and differentiated customers whose requirements can change in the blink of an eye. Often these customers are used to having their needs met easily via the apps in their pockets. For example, if a car is not available quickly enough on one ride-hailing platform, such as Lyft, then another option is likely just a click away at Uber.

Finally, the third change: more competitors than ever before are waiting in the wings, eager to take advantage of disruptive change and outmaneuver slow incumbents. In addition to their larger numbers, these competitors are smart and aggressive. Keeping track of these players is not easy, but firms’ competitive success depends on it.

What does all this mean for teams? In their roles as leaders of innovation, they must find the knowledge they need outside their immediate environments, and often outside their organizations, and bring it in. The knowledge may be technical—such as input from the latest science in a particular discipline—but it could also be information related to what customers demand and what competitors are doing. Lack of such real-time information can spell disaster for a product development team—such as when creating a technically sophisticated product that customers no longer want for a market segment that competitors have already filled.

But there’s still more reason for teams to tap outside sources for knowledge: the time pressure to stay abreast of the competition means that teams cannot afford to reinvent the wheel. Odds are that other teams within the organization or in other firms have found solutions to the very problems the team is facing. Teams need to find these other teams, learn from them, and borrow best practices.

The problem that Team Fox and many other groups described in this book have in common is that, while competitive demands have become tougher, the critical knowledge needed to beat the competition is ever more complex, fast advancing, and spread out. More and more, the knowledge that teams need to accomplish their tasks can’t be found within the team or even the company itself. Instead, these teams find it critical to push their boundaries in pursuit of the information they seek. The changes in knowledge structures also have far-reaching implications for the structure of the very tasks in which teams are engaged. We discuss these expanding task boundaries next.

You Can’t Do It Alone: Expanding Task Interdependencies

Let’s return to Team Fox at Pharmaco, which faced a challenging job indeed. First, team members had to work overtime just to identify a potential blockbuster drug outside Pharmaco and the expertise needed to evaluate and develop it. Second, they had to constantly stay in touch with the executive level to make sure they would have the resources and buy-in to keep the project on track. But they had to keep a third ball in the air as well: throughout the process they needed to coordinate and synchronize their work with that of other teams. For example, Team Fox had to coordinate with colleagues when planning the design of labs, purchasing active ingredients, and so on. In addition, the team needed to coordinate its marketing message with those of other drugs in the pipeline. Having a unifying message for potential customers was important for building a brand in anti-inflammatory drugs. Finally, Fox needed to coordinate with external parties, notably the firm that they acquired the anti-inflammatory molecule from and patient groups that wanted the drug as soon as possible.

All of this is to illustrate, of course, that the same competitive pressures that have driven changes in power structures and knowledge structures have also had a profound impact on the structure of work—they have expanded the boundaries of teams’ tasks themselves, changing the scope of the work that they do. For example, a team may have to create a lateral link to another team that has the key knowledge it needs, then synchronize efforts, schedules, and so on. Such interdependencies increase the complexity and difficulty of a task considerably. Consider Microsoft’s bestselling Office suite of apps. If you are working on the team responsible for PowerPoint, you better know exactly how the app is interdependent with Word and Excel. If you do not, the outcome will be disastrous.

Relatedly, the increased necessity of speed has triggered a move from sequences of subtasks to iterations between interdependent tasks. No longer do design engineers simply design a car model and throw it over the wall to manufacturing. Instead, they talk to manufacturing engineers about what they’re thinking, to see whether the new ideas can be implemented effectively. The approach is interdependent and iterative, not sequential. The agile approach to software development is another case in point: In contrast to the traditional waterfall method, which is sequential, the agile approach relies on rapid experimentation and iteration. As a result, interdependencies are strong across different stages of software development.

The necessity of speed also creates task decomposition. A task may be broken down into multiple pieces to be completed by different work units. This increases the demand for coordination across teams to make sure the pieces come together again effectively.

At the center of this process, we find teams that need to coordinate with each other to make sure that what they do seamlessly fits the product family, the system solution, or the manufacturing platform. To make things even more complicated, in an ever-changing competitive landscape, this has to be done fast. New strategic imperatives of speed and synergies for firms, then, have created greater interdependence and more work for teams.

The changes we have illustrated in this chapter are what led us to develop the concept of x-teams and to further delineate their core principles. These principles are the subject of part 2 of the book.

We live in an exponentially changing world. The challenges facing organizations are different from those they faced in the more ordered world of the past. In particular, organizations face changes to (1) the power structures in which teams operate, (2) the structure of knowledge with which they work, and (3) the structure of tasks they perform. X-teams are well suited to managing such changes.