Paper presented by Stu Winby at the 2012 STS Roundtable Conference in Canterbury, UK.

1. Adapting to New Realities
The Emergence of Network Organizations and Work Systems
By Stu Winby
The use of organizational networks as transformational mechanisms for change, and the formalization of
networks designed as work systems are providing companies with a new capability for agility, speed and
adaptation.
When scanning today’s current business
environment, one quickly notices the use of
organizational networks which are employed for a
variety of purposes. These examples range from
companies coming together to form networks around
new business models, to internal networks designed
as productive work systems, to the social/ political
networks that have recently formed in Egypt and
elsewhere in the Middle East that are driving
widespread regional transformation. The emergence
of network organizations and work systems is most
evident in high tech companies and healthcare.
Apple's iTunes system is a good example. While
tightly controlled by Apple, the development of
iTunes required significant cooperation between
content providers (artists and publishers), wireless
operators, and application developers. The ease and
free sharing of digital music pushed the music
industry into turmoil. Apple seized the moment and
created a disruptive and effective alternative system.
In so doing it redefined the value chain, coupled
business model and product innovation, and
developed open organizational networks.
Similarly, healthcare has entered tumultuous times.
Soaring costs, government intervention and
innovative technology wreak havoc on existing
healthcare systems. New emergent care models,
accountable-care, and the medical home signal
systems transformation that requires a networked
multi-party collaboration. Fairview Health has created
external network models with payers and employers
such as Target, and internal adaptive work system
networks for rapid innovation and widespread
diffusion. This creation of an interconnected network
has changed how Fairview views the healthcare
ecosystem. Health care no longer will be organized
around discrete, unbundled entities. The dynamic
care systems of the future will focus on oversight,
entry and access, enabled by organizational networks.
Network models of integrated services, information,
resources, workforce and facilities will be the glue
that holds systems together. In the past, the ideal
organizational infrastructure for hospitals evolved
from discrete departments to integrated clinical
service lines. However, optimal performance in the
future will require further transformation toward
synchronized network systems that align core clinical
areas and elevate resource effectiveness to address
patient needs. The ability to anticipate and respond
to patient needs throughout a person’s life cycle will
be the core competency for success in health care
transformation. By building these complex adaptive
networks, based on the ability to manage a set of
relationships, versus managing a hospital, will help to
minimize costs and maximize impact on patient
health through education, prevention, and
coordinated patient care when needed.
Cisco is targeting to double its growth through
“dynamic networks” by integrating its collaborative
technologies, like TelePresence and WebEx with
innovation. These organizational networks will
efficiently scale where past hierarchical models posed
a barrier to growth. Cisco has moved rapidly in this
direction through the design of lateral decision
structures called councils and boards and the use of
decision accelerator processes for network driven
decision making. The “dynamic network” initiative is

2. Confidential and Proprietary, © March - 2011 Sapience Network. Not to be reproduced or distributed Page 2
still work-in-progress and not fully implemented
beyond pilot efforts.
Organizational Networks Are Not New
Organizational networks are not new to technology
companies, or for that matter healthcare. Early use of
network forms was evident in socio-technical systems
and high involvement organizational models used
initially in manufacturing and spreading to healthcare
in the 70s. In the late 1980s and 1990s, Communities
of Practice networks, started at Xerox, and the Work
Innovation Network at Hewlett Packard, created
informal networks for innovation and diffusion. In
the last decade there has been an explosion in social
networks, often referred to as informal networks.
Systems networks, often referred to as value-nets
have become commonplace in organizing multiple
company partners along a value chain, each in
cooperation with the others to provide a product or
service to a shared customer. Innovation networks,
frequently referred to as innovation platforms, have
been used to provide the organizational means for
innovation by focusing resources on innovations and
providing processes for managing innovation.
Hewlett Packard and Cisco have used extensive
networking across selected innovation platforms, and
Fairview Health has used similar network models for
its care model innovation projects. Currently, the
Decision Accelerator, an event that is designed and
operates as a network, has been highly successful
both in technology companies and with health care
providers. Most of these network examples have
resulted from the need to manage innovation and
increase organizational agility and speed through
higher levels of employee engagement.
All organizational lateral designs, such as cross-
functional teams and matrix arrangements are forms
of networks. However, these current examples at
Cisco and Fairview rely more on network principles
and practices, and employee engagement than
hierarchical mechanisms to get work done. What is
new, are the use of organizational networks as
transformational mechanisms for change, and the
formation of networks as work systems to get work
done. Essentially informal networks are becoming
formal.
The use of networks as the preferred approach to
solving problems, managing projects, and adapting to
change is increasing. These organizational networks
and the various processes they employ are emerging
under different names – Cisco calls them dynamic
network organizations, McKinsey uses the term
dynamic management, others refer to them as
adaptive organizations, adaptive work-systems, and
complex adaptive systems.
Hierarchies and Networks
The pervasive use of information technology
(specifically social networking and collaborative 2.0
technologies), and the increasing need for strategic
and operational agility are driving a shift from
hierarchies to networks. These organizational
networks are becoming the external and internal
mechanisms fulfilling the need for speed, agility and
continuous innovation in an increasingly uncertain
environment.
The network form is designed to handle tasks and
environments that demand flexibility and adaption.
The unique capability of networks, compared to
hierarchies, is that the network organization can
flexibly construct a unique set of internal and external
relationships and linkages for each unique project.
Unlike a hierarchy, which is typically a fixed set of
relationships for processing problems, the network
configures itself to each problem. In a network
organization a novel problem is routed by the
shortest path to the right people, whereas in a
hierarchy a novel problem takes long paths by
wending its way through channels established for
familiar (routine) problems.
Moreover, a network adapts itself not by top
management fiat but by the interactions of problems,
people, and resources within the broad confines of
strategy. The network works within management
authority but has a self-adaptability feature to self-
adjust and self-design. The intrinsic ability of the
network organization to repeatedly redesign itself to
accommodate new tasks, unique problems, and
changing environments enables such organizations to
escape the plight of hierarchies, which over time
become ridged and become incapable of change.
An observable phenomenon with the use of networks
is what we call “foreground-background” where the
hierarchy recedes to the background as the network

3. Confidential and Proprietary, © March - 2011 Sapience Network. Not to be reproduced or distributed Page 3
moves to the foreground to produce value. This is
similar to professional service firms where networks
of professionals are energized and focused on client
projects, which is where the most value is created. As
a result the traditional functions or homeroom where
employees reside fade into the background.
Hierarchical structures also gain flexibility,
collaboration, and speed by creating networks across
business units, countries, and functions. These lateral
networks are commonplace in most organizations
such as cross functional teams and various matrix
organizational entities. Because a formally organized
network will cross organizational silos, it can be
viewed as a form of matrix organization. But the
differences are significant. Most significant is the
different organizing principles which drive each form
of organization. The matrix organization works
through authority and therefore is based on
management hierarchy. A formal network organizes
work through mutual self interest and therefore is
principally based on collaboration.
Today’s hierarchically based organization is built for
predictability, consistency, control, efficiency and
optimization. In order to effectively function in an
environment that is increasingly more dynamic and
turbulent, organizations must continue to optimize
processes but also at the same time to adapt. The
new emerging organizational model does both –
optimize and adapt. In other words, the emerging
organizational model is one of hierarchies and
networks, not one or the other.
Optimization and Adaption
Any business faces two demands: it must execute
current activities to survive today’s challenges and
adapt those activities to survive tomorrow’s. Since
executing and adapting require resources, managers
face continued competition for resources to address
the need to perform in the short run and also to
invest in the long run. Because of this issue of
resource allocation it is becoming increasingly more
critical and dynamic for managers to balance the right
mix of execution and adaptive work to act on their
strategy.
An adaptive work process has a different character
from an optimizing one. Optimizing reflects the basic
prescriptive, cost effective approach to solutions. An
adaptive approach begins not with a single solution,
but with multiple, potential solutions (experiments).
This approach requires exploration and selection of
the best solution by applying a series of fitness tests
and then adapting to feedback. When uncertainty is
low, adaptive approaches run the risk of higher costs.
When uncertainty is high, optimizing approaches run
the risk of setting too early on a particular solution
and stifling innovation.
Linear thinking and standardized practices are
becoming less effective in today’s volatile
environment. Management practices and
organizational processes are starting to swing from
anticipatory to adaptive where mobility,
experimentation, and speed are crucial.
The salient point is that these two fundamental
approaches to work organization are very different,
and they require different processes, different
management approaches, and different
measurements of success. It appears that in today’s
environment, understanding the difference between
these two approaches, and knowing when to employ
one approach over the other is a critical management
competence. The challenge for leaders today is
understanding how to achieve the right balance for
today’s world.
The goal of reliability in an optimized environment is
to produce consistent, predictable outcomes. The
goal of validity in an adaptive environment is to
produce outcomes that meet desired objectives.
Leadership must increasingly be ambidextrous to
balance both the demands for optimization while at
the same time creating the resources and time for
exploration and experimentation. Steve Jobs is an
excellent example of managing both the reliability of
the organization with predictable processes through
lean-based operations and standardized customer
experience in the retail stores, while at the same time
supporting break through R&D with a series of
innovations like the ipod, iphone, and ipad that have
literally changed multiple industries. To achieve this
feat, Jobs created an ambidextrous organization to
support optimization and innovation activities.
An important notion but beyond the scope of this
paper is managing as designing. The task of
management is one of design. The manager is a
designer, facilitating design work through the
interaction of others. Design provides a discipline in
finding and solving problems in practical and
organizational life. Networks do their work through

4. Confidential and Proprietary, © March - 2011 Sapience Network. Not to be reproduced or distributed Page 4
design principles and practices. Adaptive design is
then a specific approach of work design, we call “net
work”.
These extremes of optimization and adaption drivers
suggest that the proper balance of resources, time,
and emphasis is a function of leadership. Not every
company will require a balance of these
organizational forms. How adaptive the work unit
needs to become will depend on strategy.
Organizational Choice and Capability
How does a manger determine the mix of adaption
and optimization in work design? It begins by
determining the types of problems being solved and
the degree of transformation required. The degree of
uncertainty in the task and transformation required
will guide the choice of organization and work design
to be employed. Fairview Health uses both adaptive
and optimized work designs to develop the new
Accountable Care Organization (ACO). For example, a
major project has been to transform its 42 clinics into
health homes. Clinics used adaptive work processes
to innovate on new care processes and then moved
to optimizing and standardizing those processes
across the clinics. In the same project, both
approaches to work design are being used for
different purposes to get different results; yet they
work synergistically to meet transformational goals.
Some of the same designers and users are engaged in
both projects.
According to a Mckinsey Quarterly global survey,
executives see an urgent need to increase the agility
and speed of their organizations. One of the main
concerns identified in the survey was how well the
organization can shift its strategic direction and how
fast it can execute its operational objectives. The
organization’s agility was defined as its ability to
change tactics or direction quickly – that is to
anticipate, adapt, and react decisively to events in the
business environment. Speed was defined as how
rapidly an organization executes an operational or
strategic objective. Also, the Center for Effective
Organizations at USC has also found the strategic
importance of agility and speed resulting in an
organizational choice for more network
organizational capability.
There are a number of advantages to building a
network organizational capability. The network
increases the capacity of the entire organization to
make more decisions, more often. In a business world
of constant change and adaption, the organization
must have the ability to constantly decide and re-
decide its activities. The network not only makes
more decisions, but also makes different types of
decisions. The network allows the resources of the
entire organization to be marshaled on various
dimensions. The network can lead to better, faster
decisions.
Organization Design
A basic principle of organization design is that the
greater the uncertainty of the task, the greater the
amount of information that has to be processed
between decision-makers during the execution of the
task. This information processing view, first
postulated by Jay Galbraith in the early 1970s, is
considered the prevailing design principle among
organizational designers today. Galbraith went on to
say that “the observed variations in organizational
forms are variations in the strategies of organizations
to increase their ability to preplan, increase their
flexibility to adapt to their inability to preplan, or
decrease the level of performance required for
continued viability”. The designer chooses one of
these three strategies based on relative costs. So as
the world has become more uncertain and tasks more
complex, organizations have used decentralized
lateral mechanisms, like cross functional teams and
matrix structures, to provide the needed flexibility
which is less evident in our vertical hierarchies that
are in place.
The working assumption of most designers has been
that the accomplishment of a complex task is through
a decentralized process, requiring the simultaneous,
coordinated efforts of many specialized workers. In
reality, when the organization embarks on a major
new project, the people involved don't actually know
how they are going to do it. Designs are rarely final
before production itself is commenced, and
performance standards evolve along with the project.
Furthermore, no one person's role in the overall
scheme is ever precisely specified in advance. Rather
each person starts with a general notion of what is
required of him or her and refines that notion only by
interacting with other problem-solvers. The true
ambiguity of today’s business processes is not just
that the environment necessitates continued redesign

5. Confidential and Proprietary, © March - 2011 Sapience Network. Not to be reproduced or distributed Page 5
of the production process but that design itself, along
with innovation and variance control, is a task to be
performed, not only at the same time as the task of
production but also in the same decentralized
fashion.
When environmental uncertainty is low - that is when
change occurs slowly and the future is predictable -
then task ambiguity is suppressed, effectively
allowing the design / learning and production phases
to be completed separately. But once the
environment increases the rate of change required
for competitive performance, complex tasks must be
correspondingly repartitioned, and available human
capital correspondingly reallocated. This
repartitioning problem is best solved by the same
individuals who have to perform the task of
production. When solving complex problems in
ambiguous environments, individuals compensate for
the limited knowledge of the interdependencies
between their various tasks and for their uncertainty
about the future by exchanging information,
knowledge, advice, expertise, and resources with
other problem-solvers within the same organization.
The result, in a successful organization, is a continued
swirl of problem-solving activity and ever shifting
interactions between the problem solvers, each of
whom has information relevant to the solution of a
particular problem, but none of whom knows enough
to act in isolation. Nor does any one person know
precisely who knows what; hence problem-solving is a
matter of not just performing, but also the necessary
combinations of resources, and searching for and
discovering of those resources in the first place.
In the network organization we may think of the
"information-processing" part of the organization as
one huge decision-making machine, which takes
signals from the environment and transforms them
into actions taken by the workers. It is in this sense
that the information-processing activities are "de-
centralized," i.e., spread out among a large number of
persons in the organization. The adaptive work
system network utilizes a decision accelerator
management process to mobilize networks,
decentralize the information processing activity, and
serve as large decision-making machine.
Organizations that are bad at facilitating distributed
communications are typically bad at solving problems
and therefore bad at handling uncertainty and
change. The shift from hierarchy to network is to
think about organizations as networks of information
processors, where the role of the network is to
handle large volumes of information efficiently and
without overloading any individual processor.
Network organization can be seen as the transmission
of information through connected social-technical
systems. This model of a network organization is
discussed later in this paper under adaptive work
systems.
Types of Network Organizations
Network organizations have common properties and
traits: an adaptive culture that embraces change,
minimal rules that encourage self-organization, high
levels of collaboration and interaction among
members, and accountability and a focus on
execution. A network is an ensemble of independent
agents who interact to create a community and
whose interaction is defined by the exchange of
information. Individual actions are based on some
system of internal rules. Members self-organize to
produce emergent and business results.
As has been noted, there are multiple types of
network organizations. Two of the most common
types are internal social informal networks and
external value networks. In addition, the most
promising emerging network is formal, designed as a
work system, and focused on creating value for the
firm. This is known as an adaptive work system.
External Networks
The term value network is used to describe external
partnership networks. The team, or a value network,
jointly possesses capabilities that precisely match a
customer’s requirements. In a network-centric
environment, then, an organization will belong
simultaneously to a number of value networks—one
for each product or service it is engaged in providing.
Value networks can be differentiated according to
their ability to provide a product or service that
commands a high return. High-value networks are
those with a competitive advantage stemming from
the tacit knowledge and integrated skills that have
been combined into a killer value proposition. In the
high technology world various business model
combinations are put together which form these
value networks.

6. Confidential and Proprietary, © March - 2011 Sapience Network. Not to be reproduced or distributed Page 6
The network-centric organization exists because of
the unique set of capabilities—that is, knowledge
assets—that it possesses. Putting these assets to
work, to support the value discipline of a network,
requires that the organization be explicitly aware of
what its core set of capabilities are.
A key challenge for network-centric organizations of
the future is to balance the requirements of value-
network leadership against the proprietary nature of
the firm’s tacit and technical knowledge assets. If an
organization restricts its knowledge to internal use, it
will be precluded from membership in the high-value
networks that characterize success. On the other
hand, if it converts all of its knowledge to technical
form and shares it with network partners, it destroys
its very reason for existence under the bundle-of
capabilities view of the firm. The resolution of this
dilemma lies in the nature of the network-centric
organization as a dynamic, rather than a static, entity.
Internal Social Networks
Informal networks are a powerful source of lateral
collaboration across silos, but as ad hoc structures
their performance is typically not goal directed and
they are not managed. Social based networks
typically flourish spontaneously, build social capital,
share important tacit information, and are supported
by increasingly more sophisticated digital tools like
community websites, web meeting tools, and an array
of social networking technology. A recent series of
articles (McKinsey Journal) have suggested that these
informal social based networks increase complexity
and confusion, and are not usually driven to create
value. This is starting to change where social media
tools are starting to be used in the workplace to get
work done. Silicon Valley companies frequently use
Facebook or Twitter to get information on specific
topics or spread information. These tools are being
used more and more as marketing devices to mobilize
social networks and spread the buzz.
When social media technology and social network
processes are deliberately used as design elements in
the design of networks, then networks have the
potential to be internal work organizations, or what
are called adaptive work systems.
Adaptive Work System Network
Networks form to solve problems and execute
projects. The ability to do this more effectively and
efficiently than traditional approaches to problem-
solving and project management is a very important
capability in a rapidly changing and complex
environment. This is exactly what the adaptive work
system is intended to do. An adaptive work system is
a type of network organization which has been
described as the modern world knowledge-work
production system.
Work units are self-regulating teams where managers
are coordinators who push capability (information,
knowledge, and decision-making) into the work unit’s
boundary to get its task done. Clusters of teams
reconfigure based on learning and progress.
Information is transparent, work is iterative, metrics
are value-based, and customers drive acceptability of
work output. Adaptive work systems are next
generation socio-technical systems which optimize
social system work interactions and self-organization
with technical system information processing.
One healthcare provider used adaptive work systems
to transform 42 traditional medical clinics to state
certified medical homes in less than 10 months.
Competitive healthcare providers in the state
achieved less than half this number in the same time
period.
Summary
As an organizational capability networks will never
replace hierarchical structures, but it is clear now that
network forms and capabilities offer a range of
choices for managing people, ideas, and work that
were not previously available. Networks will
increasingly play a more important role in facilitating
adaptive change and executing new innovative
solutions for companies.
References
1. Emery, F and Trist, E. Towards a Social Ecology. London and
New York. Plenum Press: 1973
2. Galbraith, Jay. Organization Design - an Information
processing View. Interfaces 1974
3. Geerat J. Vermeij. The Evolutionary World – How Adaption
Explains Everything from Seashells to Civilization. New York:
St. Martin’s Press; 2110.

7. Confidential and Proprietary, © March - 2011 Sapience Network. Not to be reproduced or distributed Page 7
4. Malone, Thomas W. The Future of Work. Boston,
Massachusetts; Harvard Business School Press; 2004.
5. Martin, Roger. The Design of Business. . Boston,
Massachusetts; Harvard Business School Press; 2009.
6. McDermott, Richard and Archibald, Dougles. HBR,
Harnessing Your Staff ’s Informal Networks March, 201
7. Winby, Stu. Adaptive Work Systems, White Paper, 2010
8. Winby, Stu. Work Innovation Network: Concepts and
Practice. White Paper, 2010.
9. Winby, Stu. Transformation Design. White Paper, 2011
__________________________________________________
Stu Winby- Is a managing partner of Innovation Point and
founder of the Sapience Network – both Silicon Valley firms. A
thought leader in new forms of collaboration, communication, and
coordination afforded by innovative work designs and emerging
interactive technologies that affect innovation and business
performance.