Inaugural Post

Welcome to my new blog on "Governance in a Networked World". My main motivation for establishing this blog is to facilitate conversation around the emerging issues of governing and managing in an increasingly networked business environment. When I look at how governance is being promoted today it really doesn't appear too different than what it was 30 to 40 years ago. The senior management i.e. boards of directors, are still the target for this advice, compliance and transparency of reporting is still a core requirement along with the explicit management of risk. Perhaps one difference we see today is an increasing cost of governance and more standards to demonstrate compliance with. The business landscape however, has changed substantially over the past 40 years. In fact its changed substantially over the past 15 years since the Internet became available for public use.

When I started my working life as a trainee for BHP in the early 1970s, the company was Australia's largest corporation with diverse interests in Steel, Minerals and Petroleum. In the next 10 to 20 years, like most large conglomerates of the time, it started to build control over its full supply chain. It acquired businesses to the extent that it could control the process of steel production from "the mine to the car door!". In the 1990s however, things started to change. Growth was being hindered by the sheer size and complexity of the organisation. Decision making became slow and cumbersome. A major restructure saw for the first time, a new CEO coming from outside the ranks of the existing company. He could not understand why the share price wasn't double what it was at that time. Changes happened quickly, the most significant being the deconstruction of the "owned" supply chain to focus the business on natural resources only. Business units were hived off (including my own!) and the core business grown globally through mega mergers and acquisitions. BHP Billiton is now the largest natural resources company in the world by far, with a share price more than 4 times the value it was in the 1990s. It no longer "owns" its supply chain, but it now very much relies on the partnerships that now constitute it.

The BHP Billiton story could be repeated for the vast majority of the large conglomerates of the last century, perhaps with the exception of General Electric. Shareholder value has been grown through a focus on a core business and the ability to effectively partner across the supply chain. In fact the supply chain should be more accurately called the "supply network", as the increasing interdependencies of firms operating in a market sector makes the "chain" analogy look distinctly old fashioned.

Now to the governance bit. The old colglomerates grew up in an era when hierarchical control was the order of the day. Decision making necessarily travelled up and down the chain of command. Governance was all "top down". Today many of the conglomerates have largely disappeared. Organisational structures have been flattened to facilitate agility and faster decision making. And governance systems have done what? Have they changed substantially at all? The focus is still top down control. The expectation is that senior management can "control" everything. In my view the networked business environment has worked against senior management's ability to "control" the business. I believe the paradigm has shifted from one of "control" to one of "influence". Until governance mechanisms are adapted to this change I believe they will continue to add cost and reduce value to the very organisations that they are trying to help.

Well thats my view and I'll be posting other supporting material over time. However, I'm equally interested in hearing contrary views. I'd like this blog to become an active conversation forum for how governance mechanisms can be adapted to the networked world. I welcome your participation.