Why your company’s culture needs a ‘fractal redesign’
A fintech start-up from India accelerated its growth plans in the U.S. market. The new technology of GenAI further reduced the time to customize their bespoke CRM solutions to weeks, versus the months taken by large incumbents with their more standard offerings. The start-up’s “all-hands-on-deck” team culture (along with modular product design) enabled them to rapidly adopt and integrate the new technology into their business. For them, speed trumped scale.
This new competitive dynamic represents an extraordinary turn of events. For the past 100 years, global companies have succeeded by competing on the basis of their scale, which drove greater cost efficiency. To execute this strategy, their leaders built hierarchical organizations with a command-and-control culture. But while efficient in its execution, it was also inherently bureaucratic and slow to adapt or meet fast-changing local customer needs. Today, these companies’ global scale is becoming a source of local weakness in the fragmenting world.
In previous Fortune articles, we have written about this radical shift in competitive landscape from disruptive geopolitical, technological (GenAI is the latest), and societal forces, and the emergence of a new basis of competition, something we call “fractal advantage.” To prosper, global companies must pivot to win “local battles” on the basis of speed, innovation, and customer responsiveness, rather than being the most efficient company for the global customer. In shorthand, although scale remains an important competitive strength, they need to shift their operating model from one focused on “global at scale” to “local at speed.”
Many business leaders agree conceptually that they need to build such a “fractal” organization—a flexible, adaptive, and connected network of empowered local “edge” teams that operate close to and respond quickly to customers. “What I like about the fractal business model is that it encapsulates well the need for local granularity within an overall global structure,” one business leader told us. Simply put: The fractal organization helps business leaders break the compromise between scale and speed.
Yet, despite this, few global business leaders have built a fractal organization, even as the need to respond to local-at-speed disruptors has become more urgent. Why haven’t they done so? The answer is simple: “culture,” and its underlying power structures. To build a local-at-speed, fractal-network company, they must build a very different culture, one that challenges deeply entrenched power structures underpinning the traditional hierarchical culture of which they have been primary beneficiaries.
Three features of fractal culture
Culture is complex to describe (which is what makes it so difficult to change). One way to describe it is to “de-average” and simplify it into actionable “markers” or features which can be understood, communicated, and embedded. As we studied both incumbents and companies on the fractal journey, we synthesized three key features that differentiate them. Together, these features create a powerful new cultural paradigm that transforms how a company thinks and behaves. Let’s look at each of them in turn.
1. KPIs to OKRs: Shifting from individual efficiency to outcome. Local-at-speed companies focus on outcome at the consumer interface (the “edge”), which is best delivered by local teams with empowered leaders. They do this bydevolving (not just delegating) decision rights and control over resources, and by ensuring that innovative ideas developed in local markets are shared and replicated swiftly throughout the organization. To make this transition effective, they often deploy the OKRs (objectives and key results) performance management system. Whereas KPIs (key performance indicators) measure the efficiency of individual roles, OKRs measure customer-focused team outcomes, and therefore incentivize the collaboration that is the quintessence of a fractal-network culture.
2. Cycle-time to Takt-time: Shifting the organizational rhythm from slow to fast. Local-at-speed companies operate with a fast organizational rhythm. It is fast because the pace is determined by the need to respond to customers as quickly as possible—in contrast to global-at-scale companies, whose slower “cycle time” was set by multi-year product life cycles and their associated annual plans. We call the high-tempo local-at-speed rhythm “takt time,” a German term popularized by Toyota in designing “just-in-time” manufacturing to respond in real time to changes in customer demand. Every activity —whether it’s a new investment, a product upgrade, or a business-as-usual team outcome—is ‘projectized,” i.e. planned, actioned, and measured for outcome in weeks and days but not in years.
3. Scale-to-Experience Curve: Shifting from incremental asset growth to exponential knowledge growth. Local-at-speed companies win by accumulating replicable, locally generated knowledge to create new customer solutions more cheaply and more quickly—in contrast to global-at-scale companies, which seek advantage through centrally driven, systematic growth of physical, people, and IP assets. In a sense their competitiveness is driven by exploiting the “(knowledge) experience curve” from rapid and continuous innovation, experimentation, and customization at the “edge” and its replication across the company, as opposed to the “(asset) scale curve”.
Making the fractal-network organization a reality
OKRs, takt time, and the experience (knowledge) curve are not new concepts. Many companies have implemented them in some form or shape. So why hasn’t there been more widespread adoption and emergence of local-at-speed companies? To us the failure stems from the one theme that links all three: Each necessitates transfer of power from the center to the “edge.” This calls for a leadership consensus on a culture that values local ownership and speed over bureaucratic global efficiency. The easier option is to treat them as individual structural elements of organizational design, which offers at best limited benefits.
During our research we found many global-at-scale companies whose leaders have begun to do precisely this. They can be grouped into three kinds. One set of companies, like Procter & Gamble, came under pressure from the market to reignite growth. P&G’s solution was to dismantle the centralized bureaucratic organization (with its complex matrix and multiple overlapping decision makers) and move to a new organizational structure, with empowered CEOs for restructured business lines and “focus” countries who had “clear line of sight to the customer.” This speeded up decision-making, local innovation, and customer responsiveness, which was immediately visible in the company’s much-improved performance. Former chairman and CEO David Taylor called this P&G’s “most profound organization change…in the last 20 years”.
Another set of companies is perhaps best represented by Siemens. Siemens had a new CEO, Roland Busch, who came in with a strong belief that to sustain leadership in a new world, the company had to change radically. From a “closed” hierarchical organization designed for the “old world,” the company had to build an “open” and collaborative culture with empowered business and market leaders, and a culture that balanced global scale with local speed.
As a firm of engineers, Siemens drew inspiration from the concepts of “APIs” (application programming interfaces) and “componentization,” which revolutionized software design, to build their new cultural narrative. APIs had empowered local teams to rapidly customize (to meet customer needs) a globally designed software. To build its new open culture and foster local knowledge and empowerment, Siemens recently launched Xcelerator, an open digital business platform. Xcelerator enables local teams to collaborate across the firm and with external partners and customers to quickly design modular solutions for their markets, using local APIs that can then be scaled across markets.
Then, of course, we saw many start-ups with charismatic and powerful leaders who built their new organization grounds-up with a fractal culture. One of the best examples is Bajaj Finance in India, which under chairman Sanjiv Bajaj has become the market leader in non-banking financial services within two decades after launch by espousing a unique “break to grow” philosophy. They have systematically delegated ownership (supported by a highly metricized, data-sharing culture for real-time, high-speed decision making) for identifiable profit pools at the customer “edge” to drive their industry-leading profitable growth.
All these efforts are journeys in progress. While we have presented global at scale and local at speed as two ends of an operating and cultural spectrum, we know that global companies can’t suddenly switch from global-at-scale and hierarchy-driven organizations to become local-at-speed, fractal-network companies overnight. The reality is that in most organizations both will exist. P&G, Siemens, Bajaj Finance, and many others are showing how to balance them to their specific context to build a winning company.
The time has come for other leaders to follow their example. In the end, however, leaders may have no choice. The world is moving inexorably in a direction that favors networks above hierarchies.
The Stanford University historian Niall Ferguson makes the case that there have been only two moments in history when networks have prevailed over hierarchies. The first was Johannes Gutenberg’s invention of the printing press in the 1400s, which “democratized” and diffused the knowledge once enjoyed exclusively by the ruling elites, and empowered ordinary people by overturning age-old power dynamics. The second moment is now. The change started in the mid-twentieth century with the advancement of information technology and has grown rapidly with the digital technology revolution—accelerating faster with growth of generative AI.
If you are a CEO, you’ll want to get ahead of history and start building your personal legacy by reimagining your company for the fractal-networked age. You won’t be the first. But you certainly don’t want to be the last.
Arindam Bhattacharya is a senior advisor at Boston Consulting Group. He is a former managing director and senior partner at BCG and a cofounder of the BCG Henderson Institute. He is also the former head of BCG India,
Hans-Paul Buerkner is managing director and global chair emeritus at BCG, and the former CEO and chairman of BCG.
Some companies featured in this column are past or current clients of BCG.
This story was originally featured on Fortune.com
